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On Friday, BofA Securities resumed coverage on James Hardie Industries (NYSE:JHX:AU) (NYSE: JHX), upgrading the stock to a Buy rating with a price target of AUD43.40, increased from the previous AUD42.00. The firm’s analysts cite several reasons for the positive outlook, including the stock’s potential for earnings per share (EPS) accretion from the fiscal year 2027, assuming the completion of the AZEK acquisition. According to InvestingPro data, JHX currently trades at $24.64, with analysts maintaining a strong buy consensus and an average price target suggesting significant upside potential.
The analysts highlighted that they have not made any estimate changes and are not including the impact of the AZEK acquisition until the deal is finalized. Despite the lack of adjustments to their estimates, the analysts believe that the recent 19% decline in James Hardie’s stock price since the acquisition announcement presents an attractive entry point for investors. InvestingPro data shows the stock has fallen nearly 16% in the past week alone and is currently trading near its 52-week low, with technical indicators suggesting oversold conditions. InvestingPro subscribers have access to 13 additional key insights about JHX’s current market position.
James Hardie’s reputation as a best-in-class company with a significant competitive moat was emphasized, owing to its high-quality products. The analysts also pointed out that the company’s valuation is appealing, currently standing two standard deviations below the mean on an enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) basis. InvestingPro analysis indicates the stock is currently undervalued, with strong fundamentals including a healthy current ratio of 2.18 and robust gross margins of 39.45%. The company’s overall financial health score is rated as "GOOD" by InvestingPro’s comprehensive assessment system.
Furthermore, BofA Securities sees the risk-reward balance as being skewed to the upside for James Hardie. The firm’s Quant team has indicated that offshore investors are underweight on the stock, suggesting there might be room for increased investment interest.
The upgrade by BofA Securities reflects a confidence in James Hardie’s market position and its potential for growth, particularly in light of the anticipated benefits from the pending AZEK acquisition. The firm’s analysts have set their price objective at AUD43.40, equivalent to US$27.35, a slight adjustment from the previous US$27.40.
In other recent news, The AZEK Group LLC is set to be acquired by James Hardie Industries plc for $8.75 billion, including AZEK’s net debt of $386 million. This acquisition has prompted Moody’s to place AZEK’s ratings under review for a potential upgrade, reflecting the anticipated benefits from James Hardie’s stronger credit profile and larger scale. Concurrently, Fitch Ratings has placed AZEK on a positive rating watch, noting the potential for improved credit metrics and enhanced business profile post-acquisition. Additionally, S&P Global Ratings has placed AZEK on CreditWatch with positive implications, suggesting potential improvements in credit quality due to the merger.
James Hardie announced the acquisition, which will see AZEK shareholders receive $26.45 in cash and 1.034 shares of James Hardie for each AZEK share. This transaction is expected to close in the second half of 2025, pending necessary approvals. Moody’s has revised James Hardie’s outlook to stable, affirming its Ba1 ratings, while Fitch has changed its outlook to negative, citing increased leverage concerns. Fitch projects that James Hardie’s EBITDA leverage will rise to over 3x following the acquisition, with expectations of gradual reduction over the coming years.
The merger is anticipated to increase James Hardie’s revenue to approximately $5.4 billion and improve its EBITDA margin to 27%. Fitch forecasts a combined pro forma revenue of $5.9 billion and an EBITDA margin of 26.3%, excluding potential cost synergies. Despite the leverage concerns, the acquisition is expected to enhance James Hardie’s product offerings and market presence, benefiting both companies’ business profiles.
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