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On Friday, Truist Securities reiterated its Buy rating on James Hardie Industries (NYSE:JHX) with a steady price target of $45.00. The firm's analyst praised the company's recent business dealings, highlighting the strategic value of its collaboration with AZEK and the potential for significant synergies due to strong brand names and James Hardie's contractor network. Trading at $21.68, significantly below its 52-week high of $43.57, the stock has faced headwinds, with InvestingPro data showing a 43% decline over the past year. The analyst noted that despite the stock's recent performance, which has been affected by the Australian shareholder base's general aversion to acquisitions and differing valuation perspectives, the current price assumes an overly pessimistic scenario.
James Hardie's stock has been trading at 8.8 times its estimated enterprise value to 2025 earnings before interest, taxes, depreciation, and amortization (EV/2025E EBITDA), a valuation that the analyst believes accounts for a recession and ignores the benefits of the deal synergies. According to InvestingPro, the company maintains strong financial health with a current ratio of 2.18 and operates with moderate debt levels. The firm considers this view excessively negative and identifies James Hardie as a top pick within its sector. However, the analyst pointed out that investors interested in purchasing the stock might need to turn to the Australian market due to higher liquidity and the unique listing structure of James Hardie's American Depositary Receipts (ADRs) in the U.S.
The analyst's commentary further emphasized that the valuation of James Hardie has dipped to levels seldom seen and is currently below the average for its industry group. This is in contrast to the company's leading profit margins, with InvestingPro showing a healthy gross profit margin of 39.45% and strong cash flows sufficient to cover interest payments. The challenge for many U.S. investors is the inability to buy ADRs and the limited options to invest internationally. For those seeking deeper insights, InvestingPro's comprehensive research report offers detailed analysis of JHX's financial health, valuation metrics, and growth potential. The analyst believes that hedge funds, with their flexibility to make international purchases, are well-positioned to take advantage of this situation and should capitalize on the current market conditions.
In other recent news, James Hardie Industries has announced a definitive agreement to acquire The AZEK Company for $8.75 billion, including AZEK's net debt of $386 million. The merger is expected to increase James Hardie's revenue scale to approximately $5.4 billion and improve its EBITDA margin to 27% on Moody's adjusted basis. Following this acquisition announcement, BofA Securities upgraded James Hardie's stock to a Buy rating, setting a new price target at AUD43.40. The upgrade reflects confidence in James Hardie's market position and potential growth from the AZEK acquisition. Moody's has revised James Hardie's outlook to stable, affirming its Ba1 corporate family rating, while Fitch Ratings has changed James Hardie's outlook to negative, citing concerns about increased leverage. Fitch also placed AZEK on a positive rating watch, recognizing the potential benefits of the merger, including enhanced scale and profitability. The transaction, expected to close in the second half of 2025, will see AZEK's shareholders receiving cash and shares of James Hardie stock. The combined entity aims to benefit from economies of scale and a broadened product portfolio.
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