In Search of Profitable Stocks: Fortune Brands Home & Security, Inc. (FBHS), Cummins Inc. (CMI)

Shares of Fortune Brands Home & Security, Inc. (NYSE:FBHS) are on a recovery track as they have regained 28.91% since bottoming out at $52.05 on Oct. 26, 2016. Thanks to a rise of almost 1.77% in the past five days, the stock price is now up 25.51% so far on the year — still in strong territory. In this case, shares are down -0.34% from $67.5 , the 52-week high touched on Jul. 14, 2017, and are keeping their losses at 9.41% for the past 12 months.

FBHS Target Price Reaches $69.68

Brokerage houses, on average, are recommending investors to hold Fortune Brands Home & Security, Inc. (FBHS)’s shares projecting a $69.68 target price. Analysts‟ target price forecasts are a prediction of a stock‟s future price, generally over the 12 months following the release date (Asquith et al., 2005). This forecast is a point estimate that provides investors with a benchmark against which to directly compare stock price in the short run.Target prices made by analysts employed by large brokers, who have access to a greater resource pool, are more likely to be met over the 12-month forecast period.

How Quickly Fortune Brands Home & Security, Inc. (FBHS)’s Sales Grew?

FBHS’s revenue has grown at an average annualized rate of about 8.4% during the past five years. However, the company’s most recent quarter increase of 7.3% looks attractive. The sales growth rate for a stock is a measure of how the stock’s sales per share (SPS) has grown over a specific period of time. It tells an investor how quickly a company is increasing its revenues. The sales growth rate helps investors determine how strong the overall growth-orientation is for a stock or portfolio.

Cummins Inc. Achieves Above-Average Profit Margin

The best measure of a company is its profitability, for without it, it cannot grow, and if it doesn’t grow, then its stock will trend downward. Increasing profits are the best indication that a company can pay dividends and that the share price will trend upward. Creditors will loan money at a cheaper rate to a profitable company than to an unprofitable one; consequently, profitable companies can use leverage to increase stockholders’ equity even more. Profitability ratios compare different accounts to see how efficiently a business is generating profits. These ratios show how well income is generated through operations, and are important to both creditors and investors. They help determine the company’s ability to continue operating. Currently, Fortune Brands Home & Security, Inc. net profit margin for the 12 months is at 8.47%. Comparatively, the peers have a net margin 4.61%, and the sector’s average is 11.83%. In that light, it seems in good position compared to its peers but weakness can be witnessed when compared with the sector. The profit margin measures the amount of net income earned with each dollar’s worth of revenue. It shows the percentage of sales that remain after all of the company’s expenses have been paid. The higher the ratio, the better.

Cummins Inc. (NYSE:CMI) is another stock that is grabbing investors attention these days. Its shares have trimmed -0.59% since hitting a peak level of $166.84 on Jul. 12, 2017. Thanks to an increase of almost 3.99% in the past one month, the stock price is now outperforming with 21.36% so far on the year — still in strong zone. In this case, shares are 42.96% higher from $116.02, the worst price in 52 weeks suffered on Jul. 20, 2016, and are keeping their losses at 19.7% for the past six months.

Analysts See Cummins Inc. -165.86% Above Current Levels

The bad news is analysts don’t believe there’s a room for Cummins Inc. (CMI) to move in the upward direction. At recent closing price of $165.86, CMI has a chance to give up $-165.86 or -100% in 52 weeks, based on mean target price ($0) placed by analysts.The analyst consensus opinion of 0 looks like a buy. It has a 36-month beta of 1.07 , so you might be in for a bumpy ride.

Are Cummins Inc. (NYSE:CMI) Earnings Growing Rapidly?

For the past 5 years, Cummins Inc.’s EPS growth has been nearly -3.1%. Sure, the percentage is discouraging but better times are ahead as looking out over a next 5-year period, analysts expect the company to see its earnings go up by 13.87%, annually.

Is CMI Turning Profits into Returns?

Cummins Inc. (CMI)’s ROE is 20.86%, while industry’s is 11.33%. The average ROE for the sector stands at 13.44%. The return on equity (ROE), also known as return on investment (ROI), is the best measure of the return, since it is the product of the operating performance, asset turnover, and debt-equity management of the firm. If a firm can borrow money and use it to achieve a higher return than the cost of the debt, then the leveraging creates additional revenue that accrues to stockholders as increased equity.

Cummins Inc.’s ROA is 10.03%, while industry’s average is 6.92%. As with any return, the higher this number the better. However, it, too, needs to be taken into the context of a company’s peer group as well as its sector. The average return on assets for companies in the same sector is 6.79. The return on assets (ROA) (aka return on total assets, return on average assets), is one of the most widely used profitability ratios because it is related to both profit margin and asset turnover, and shows the rate of return for both creditors and investors of the company. ROA shows how well a company controls its costs and utilizes its resources.