JP Morgan upgrades chemical adhesives and sealants maker H.B. Fuller Co. (FUL ) to overweight from neutral.
Analyst Jeffrey Zekauskas says H.B. Fuller offers an attractive valuation relative to small-cap Specialty Chemical peer group trading at EV/EBITDA multiple of 7 times, vs. 8.3 times for teh group, and 6.4 times, vs. 7.5 times for the group in fiscal year 2006.
He expects profitability could begin to rebound in the company's cyclical business lines as price increases are beginning to stick, and margins recover from cyclical depressed levels.
Zekauskas believes earnings could expand meaningfully in the next 5 years reflecting moderating raw material costs, pricing power, and lower interest expense. Also, a rebound in euro economies could benefit H.B. Fuller.