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