Citi Initiates H.B. Fuller With Buy Rating, $53 Target

Citi’s Eric B. Petrie expects HB Fuller Co FUL, the No. 2 global adhesives company to grow its earnings through portfolio expansion, a profitability turnaround in Europe and optionality from M&A.

Petrie initiated coverage of the company with a Buy rating and price target of $53.

EBITDA Growth

The analyst believes the engineering adhesive division would contribute 30 percent of the overall EBITDA growth for HB Fuller through 2018, which the Street does not give credit to, given the current share price.

Related Link: Seaport Global Upgrades H.B. Fuller To Buy

“We like FUL's portfolio shift toward both higher growth and margins in engineered adhesives. This effort was bolstered by the acquisition of Tonsan, the #2 engineering adhesives company in China, during February 2015,” Petrie mentioned.

Increasing Margins

The company’s low exposure to these markets has led to an EBITDA margin gap versus Henkel, although earnings at the Engineering Adhesives business are expected to more than double by 2018, from the 2015 levels.

HB Fuller has restructured and re-invested in its Europe business over the past four years, which has included the closure of six plants, 45 percent SKU reduction and improved customer service.

“EIMEA margins have only started to improve to 11 percent and we see upside to ~15 percent by 2018 driven by manufacturing efficiencies, recovering market share and emerging market growth,” the analyst stated.

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