As the second-largest participant in the relatively
fragmented adhesives market, there are certainly some positive
characteristics to H.B. Fuller (NYSE:FUL).
Fuller has historically been good at "sticking to its knitting" and
focusing its resources on those markets where it had a strong position,
and the company should be able to achieve meaningful operating margin
improvements in the next few years from greater manufacturing and
operating efficiency. Better still, the company's more recent turn
towards engineered adhesives gives the company better exposure to some
of the more attractive growth markets within adhesives.
Although Fuller's shares have lagged the local market performance of its major competitors (Henkel (OTCPK:HENKY), Sika (OTC:SXYAY), and Arkema (OTCPK:ARKAY)),
it's hard to call the shares undervalued, as the price already seems to
discount high single-digit/low double-digit growth in free cash flow
and EBITDA. On the other hand, industry M&A has established a
double-digit multiple on EBITDA as "reasonable" and H.B. Fuller's pivot
toward faster-growing segments of the adhesives market could deliver
better results than presently expected. On balance, I think Arkema is a
more interesting pick today, but H.B. Fuller would be worth
reconsideration on a pullback.
Read more here:
H.B. Fuller Benefiting From Addressable Market Expansion
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