Fortune Brands’ shares surged 13 percent on Friday on the news that William Ackman’s firm Pershing Square Capital Management had purchased an 11 percent stake in the company. But the stock’s ebullience has given some analysts pause.
Peter Lisnic of Robert W. Baird downgraded Fortune’s stock on Monday morning from “outperform” to “neutral,” saying that the stock is now priced higher than its peers.
“Our rating adjustment reflects current valuation metrics that are now at a material premium relative to blended peer group multiples,” he wrote. “While [Fortune] remains well positioned in its end markets, and execution during the recession and housing downturn has been superb, current valuation metrics would appear to discount a stronger macroeconomic recovery than we believe is likely, particularly in U.S. housing construction markets.”
Deerfield-based Fortune owns sports, security and home goods brands like Titleist, Master Lock and Moen, as well as Jim Beam brands Sauza and Maker’s Mark.
Ackman is known as an activist investor, buying large chunks of big companies and then pushing hard for big changes. Also a major shareholder in Minneapolis-based Target, Ackman rallied for additional board seats, and divestures, but has so far been unable to affect major changes.
In another report, Morningstar’s Dave Sekera speculated that the increasingly hot leveraged buyout market has put any consumer goods company with a market capitalization of $10 billion in play. Leveraged buyout deals are financed primarily through borrowing.
Sekera referred to last week’s rumors of a possible Sara Lee buyout as piquing interest in other potential targets. In addition to Fortune, Sekera mentioned Clorox, ConAgra, Newell Rubbermaid, and Limited Brands.
“With private equity firms sitting on more than $400 billion in uncommitted capital available for takeovers, we expect an uptick in [leveraged buyout] deals in the near term, particularly while interest rates are low and before capital commitments must be released to investors,” he wrote.
Fortune’s shares fell 62 cents to $55.23 in midday trading Monday.
