Fortune Brands: Market’s Tariff Concerns Are Overblown

Key Morningstar Metrics for Fortune Brands Innovations

• Fair Value Estimate: $85
• Morningstar Rating: ★★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

On April 2, President Donald Trump announced sweeping tariffs, featuring a minimum 10% tariff on all US imports and higher tariff rates for some nations. On April 4, China announced a 34% retaliatory tariff on US imports. Fortune Brands Innovations’ FBIN stock has declined a cumulative 15% since April 2.

Why it matters: We think Fortune Brands’ exposure to import tariffs is mainly tied to China and Mexico. However, goods sourced from these countries each account for only about 10% of Fortune Brands’ cost of goods sold. The firm’s operations in China account for approximately 5% of total revenue.

• Fortune Brands’ 2025 adjusted EPS guidance of $4.15-$4.45 considered the effect of a 10% tariff on China imports and left room for tariffs on Canada and Mexico imports. Management anticipated mitigating incremental tariff costs with increased pricing and supply chain actions.

The bottom line: We’re now embedding a more cautious outlook into our 2025 forecast for Fortune Brands. We’re modeling less than 1% revenue growth and adjusted EPS of $4.05, short of management’s $4.15-$4.45 guidance.

• But our long-term outlook for Fortune Brands, which assumes mid-single-digit revenue growth and steady operating margins near 17.5%, remains unchanged.
• We’ve maintained our $85 per share fair value estimate for narrow-moat Fortune Brands; our downwardly revised 2025 forecast’s valuation effect was offset by the time value of money. We think the market’s reaction will prove to be overblown, and we see the stock as undervalued.