Fortune Brands, Inc. (NYSE: FO) has long been hailed as one of the best fundamental plays in the market by value investors, but when can investors expect a return to former glory? The diversified conglomerate holds premium brands that are widely considered monopolies in their respective markets, but investors continue to value the company at a meager 12x forward earnings. The company is trading down 20% on the year and continues to decline amid economic weakness and a decline in consumer spending. So, is this stock on sale right now?

Fortune Brands controls many of the most recognizable brand names in the industry. Its spirits and wine division controls Jim Bean, Makers Mark, Knob Creek, Sauza, Courvoisier, Dekuyper, Clos du Bois, and Canadian Club. Its hardware division owns Moen, Aristokraft, Therma Tru, Master Lock, Omega, Waterloo, Kitchen Craft, and Diamond. Its golf division owns Titleist, Foot Joy, Pinnacle, Cobra, and Scotty Cameroom. Combined, these brand names give this company a sustainable competitive advantage over others operating in the area over the long run.

Many investors are shying away from the company because 44% of its gross revenues come from hardware and home sales - not the best market in the world right now. Others are concerned with the company’s relatively high debt load, which management has said it would begin paying down. Fortunately (no pun intended), the company’s PEG ratio stands at a reasonable 1.44 given the slowdown while its debt-to-equity ratio stands at a manageable 0.769. It is likely that earnings will slow, but much of the slowdown may have already been built into the price. Furthermore, the company is trading at a substantial nearly 50% discount to its enterprise value.

Fortune Brands has also taken action to buy up cheap brands at today’s depressed levels. Recently, the company announced that it plans to purchase Absolut to supplement its existing wine and spirits division. The most is expected to accredit earnings within a reasonable amount of time and should help boost shareholder value. It will be interesting to see if the company makes any further acquisitions; however, it is important to keep an eye on their level of debt in the meantime.

In the end, Fortune Brands is a strong company that is caught in a decline thanks to the tough housing market and a decline in consumer spending. A lot of the weakness in its earnings has already been priced into the stock as it trades with a forward PE of just 12x and a PEG of just 1.44. Management remains committed to paying down the debt on the stock while eyeing acquisitions in today’s cheap markets. Combined, these are smart moves that could end up generating substantial shareholder value over the next few years!

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