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On Wednesday, Wolfe Research adjusted its rating for Azek Co. (NYSE: AZEK), shifting from ’Outperform’ to ’Peer Perform’ in the wake of the company’s acquisition announcement by James Hardie (NYSE:JHX). Trevor Allinson of Wolfe Research expressed that the downgrade follows the acquisition details which stipulate that Azek shareholders are to receive $26.45 in cash and 1.034 ordinary shares of James Hardie (ASX: JHX) for each Azek share they hold. This exchange was initially valued at a total of $56.88 per Azek share, calculated based on James Hardie’s closing stock price of AU$46.80 on the Australian Securities Exchange. The news has sparked significant investor interest, with InvestingPro data showing AZEK’s stock surging nearly 17% over the past week, pushing its market capitalization to $7.04 billion.
Allinson noted that the original implied deal multiple aligns closely with Azek’s historical valuation multiples. Moreover, he pointed out that Azek’s stock was trading around $55 in December 2024, suggesting that the premium offered for the acquisition does not significantly exceed the company’s recent market performance. The analyst expressed surprise at the modest premium, considering Azek’s robust growth trajectory and potential for considerable EBITDA margin enhancement. According to InvestingPro data, AZEK currently trades at an EV/EBITDA multiple of 20.7x, with trailing twelve-month EBITDA of $360.5 million. The company maintains strong financial health, earning a "GOOD" rating from InvestingPro’s comprehensive analysis system.
The transaction terms were first made public on Sunday, sparking discussions among investors regarding the valuation of the deal. Azek’s performance and the financial details of the acquisition have been closely scrutinized, especially in relation to the company’s historical valuations and recent trading levels. With annual revenue of $1.49 billion and a P/E ratio of 48.4x, AZEK demonstrates significant scale while trading at premium multiples. For deeper insights into AZEK’s valuation metrics and growth potential, investors can access the comprehensive Pro Research Report available on InvestingPro, which covers over 1,400 US stocks with detailed analysis and actionable intelligence.
Investors are reminded of the cash and stock components of the acquisition, which represent a notable event in Azek’s corporate development. The deal’s structure, providing both immediate cash and equity in James Hardie, offers a mixed compensation for current Azek shareholders.
Wolfe Research’s updated rating reflects their latest assessment of Azek’s position following the acquisition announcement. The firm’s commentary provides shareholders with a perspective on the valuation of the deal relative to Azek’s past financial metrics and market valuation.
In other recent news, The AZEK Company Inc is set to be acquired by James Hardie Industries in a deal valued at $8.75 billion. This acquisition involves AZEK shareholders receiving $26.45 in cash and 1.034 ordinary shares of James Hardie for each AZEK share. The transaction is anticipated to enhance the combined company’s scale and geographic footprint, with projected pro forma revenues of approximately $5.9 billion. Fitch Ratings has placed AZEK’s Long-Term Issuer Default Ratings on positive rating watch following the acquisition announcement, while S&P Global Ratings has placed all its ratings on AZEK on CreditWatch with positive implications. Conversely, Fitch has revised James Hardie’s Rating Outlook to negative due to concerns about increased EBITDA leverage post-acquisition. Citi has downgraded AZEK’s stock rating from Buy to Neutral, adjusting the price target to $51.50, citing limited growth potential to the new price target. DA Davidson has maintained a Neutral rating for AZEK, with a $52 target, emphasizing the strategic benefits and synergies expected from the merger. The acquisition is still subject to shareholder approval and is expected to close in the second half of 2025.
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