Fortune Brands Home & Security FBHS
FBHS is an orphaned post-spin cyclical at trough housing demand; even with no recovery it's worth $14, and normalization delivers $18-$27/share — ~70% upside.
Thesis
Pershing Square argues that Fortune Brands Home & Security (FBHS), spun off from Fortune Brands on October 4, 2011 and trading at $13, is a mispriced cyclical long with asymmetric payoff. FBHS leads North American building-products (Moen, Aristokraft, Omega, Master Lock, Therma-Tru) but consolidated EBIT margins have collapsed from 14.2% in 2006 to 4.9% LTM as housing starts sit at ~600k — roughly 25% of peak and well below the ~1.5mm long-term average. Management cut plants and headcount ~40% in the downturn while retaining capacity sized for $5bn in sales, creating immense operating leverage when housing normalizes — EBITDA could triple from ~$265mm to $850mm. Pershing values FBHS at $18-$27 (midpoint $22, ~70% upside from $13); even in a no-recovery scenario with further capacity cuts it is worth ~$14. A low-leverage balance sheet (1.8x vs. 3.9x peer average) bounds downside.
SCQA
FBHS is a North American building-products leader (Moen faucets, Master Lock, Aristokraft/Omega cabinets, Therma-Tru doors) spun off from Fortune Brands on October 4, 2011, trading at $13 with a $2.0bn market cap and $2.5bn enterprise value.
Consolidated EBIT margins have collapsed from 14.2% in 2006 to 4.9% LTM because housing starts sit at ~600k — roughly 25% of peak and well below the ~1.5mm long-term average. Capacity is deliberately oversized for an eventual recovery.
Buy FBHS at $13 and hold through the inevitable housing normalization; management has already restructured (plants and headcount down ~40%) and can right-size further if recovery lags, so operating leverage cuts both ways.
Midpoint target of $22/share today (~70% upside from $13); $18-$27 range on partial-to-full recovery, implying EBITDA of $550-$850mm. Even in a no-recovery case with further capacity cuts, FBHS is worth ~$14, an ~8% downside floor.
The three reasons
- 1
Orphaned post-spin stock — recovery optionality mispriced at $13
- 2
3x EBITDA upside when housing normalizes to 1.5mm starts
- 3
Clean balance sheet (1.8x vs 3.9x peers) limits downside while waiting
Primary demands
- Buy FBHS as an orphaned post-spin long idea
- Underwrite housing normalization as the operating-leverage unlock
- Rely on existing management restructuring (plants/headcount -40%) as downside protection
KPIs cited
Pattern membership
Composition what's on the 33 slides
Slide gallery ·
Notes
Not a classic activist campaign — pure long thesis pitch on a company spun off from Fortune Brands just two weeks prior (Oct 4, 2011). Title 'A Homespun Fortune' is a pun on the spin-off. Tone is supportive of management ('best operators', 'strong management team'), no demands, no villain. Classic Ackman post-spin 'orphaned stock' setup paired with housing-cycle optionality. Uses Warren Buffett quote (July 8, 2011 Bloomberg TV) as third-party endorsement of housing recovery thesis — a rhetorical move, not a CEO-contradiction. Before/after framing is scenario-based (LTM vs partial vs full recovery) rather than explicit management-driven inflection. Segment commentary resembles a sum-of-parts walk but valuation is done on consolidated EBITDA × 7x multiple, so no SOTP per se. Likely delivered at the Value Investing Congress (NYC, October 2011). Stake size not disclosed in the deck; disclaimer confirms common-stock and cash-settled derivative exposure but no percentage.