On Thursday, Citi updated its financial model for HB Fuller (NYSE:FUL), increasing the company's price target to $87 from the previous $86, while maintaining a Neutral rating. The revision comes as the firm anticipates the release of HB Fuller's fiscal second quarter 2024 results.
The analysis by Citi indicates that inventory reduction across HB Fuller's business is complete, with the Household and Consumer (HHC) segment being the last to finish this process. Despite concerns over declining consumer sentiment which could impact volumes, the firm expects the Engineering Adhesives (EA) division to remain robust.
This optimism is based on continued growth in the automotive and electric vehicle sectors, increased solar industry exposure, and gains from acquisitions and market share in construction-related markets.
The Construction Adhesives (CA) segment is also projected to show a strong recovery, bolstered by a resilient roofing business. Citi notes that the benefits from lower raw material costs may decrease throughout the year, but margin expansion is anticipated to arise from a rebound in volumes and effective execution of acquisition synergies and restructuring efforts.
Citi has adjusted its forecast for HB Fuller's organic growth in the second quarter of fiscal 2024, reducing it from an increase of 0.7% to a decline of 0.3%. This is attributed to slight downward revisions in both the EA and CA segments. For the full fiscal year 2024, the organic growth expectation was slightly lowered from 0.8% to 0.5%, mainly due to the second quarter adjustments.
Moreover, the acquisition of ND Industry is now included in Citi's financial model for HB Fuller, which has led to an approximate 2% increase in the firm's earnings per share (EPS) estimates for the fiscal year 2024.
InvestingPro Insights
Following the recent analysis by Citi, the InvestingPro data for HB Fuller (NYSE:FUL) reveals a market capitalization of $4.3 billion, with a P/E ratio standing at 27.86, and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 24.54.
Despite a slight revenue contraction of 5.12% over the last twelve months as of Q1 2024, HB Fuller has maintained a strong gross profit margin of 29.87%. Additionally, the company's dividend yield as of April 2024 is 1.15%, with a notable dividend growth of 17.11% in the same period, reflecting a commitment to returning value to shareholders.
InvestingPro Tips highlight that HB Fuller has raised its dividend for 31 consecutive years and possesses liquid assets that exceed short-term obligations, suggesting a stable financial position. Moreover, while some analysts have revised their earnings downwards for the upcoming period, the valuation implies a strong free cash flow yield, which could be an attractive point for investors seeking companies with potential undervaluation.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available for HB Fuller at https://www.investing.com/pro/FUL. These insights could provide further guidance on the stock's performance and prospects. Take advantage of an additional 10% off a yearly or biyearly Pro and Pro+ subscription with the coupon code PRONEWS24.
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