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On Monday, Truist Securities reaffirmed its Buy rating and a $61.00 price target for Azek Co. (NYSE: AZEK), currently trading at $41.39 with a market capitalization of approximately $6 billion, as the company is set to be acquired by James Hardie Industries (NYSE: NYSE:JHX). According to InvestingPro data, AZEK maintains a "GOOD" financial health score, operating with moderate debt levels and strong liquidity. The deal, structured as a mix of cash and stock, values Azek at $26.45 in cash plus 1.034 shares of James Hardie stock for each Azek share. Based on the closing price of James Hardie stock on Friday, this equates to a total value of $56.88 per Azek share, representing a 37% premium. AZEK has demonstrated solid performance with a revenue growth of 6.6% and a healthy gross profit margin of 37.3%. Want deeper insights? InvestingPro offers extensive financial metrics and 10+ additional ProTips for AZEK.
The acquisition, which will provide James Hardie with a listing in the United States, is not expected to significantly increase the company’s leverage, while offering potential for considerable synergies. However, the approval of the deal is not guaranteed, as the analyst pointed out that it might face a tight shareholder vote due to concerns from James Hardie’s Australian investors who may not be familiar with the composite decking market. AZEK’s current ratio of 2.56 and Altman Z-Score of 7.15 indicate strong financial stability, factors that could influence shareholder confidence in the merger.
Truist Securities highlighted that the merger brings together two major growth narratives within the building products sector. Both Azek’s composite decking and James Hardie’s fiber cement siding are considered superior alternatives to traditional materials like wood and vinyl, having demonstrated growth above their respective market categories.
In the context of the acquisition, Truist Securities also noted that Trex Company (NYSE: NYSE:TREX), which maintains a focus on composite decking, remains an attractive option for investors seeking a pure-play investment in the composite decking industry.
In other recent news, Azek Company Inc. reported strong financial results for the first quarter of fiscal 2025, exceeding expectations with earnings per share of $0.17, compared to the forecasted $0.13, and revenue reaching $285.4 million, surpassing the anticipated $264.72 million. The residential segment showed a 22% increase in net sales year-over-year, contributing significantly to the company’s robust performance. Meanwhile, James Hardie Industries announced a major acquisition deal, agreeing to acquire AZEK for approximately $8.75 billion. This acquisition is structured to be approximately 50% cash and 50% stock, aligning with their strategic focus on exterior product offerings.
Analyst firm Baird downgraded Azek’s stock from Outperform to Neutral, adjusting the price target to $53 from $58, reflecting the view that the stock’s future movements will be closely tied to the acquisition process. Additionally, AZEK expanded its recycling capabilities by acquiring Northwest Polymers, enhancing its material supply chain and supporting its growth strategy. Recent corporate governance changes were also approved by AZEK shareholders, including amendments to its certificate of incorporation and the re-election of eight directors. These developments reflect AZEK’s commitment to sustainable growth and strategic expansion in the building materials sector.
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