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Boral, James Hardie, CSL tipped for strong earnings growth

The June quarter building activity statistics released by the Australian Bureau of Statistics (ABS) adds to the emerging growth story for residential housing. The value of work done on new residential building was up a seasonally adjusted 5.9% compared to the June quarter 2012.

The most recent peak was set back in 2010 when both residential and non-residential building were at their highest, and 2012 was the low spot on a relatively flat seven-year trend line. Of the $20.3 billion of total work done, residential building made up approximately half, at $10.2 billion.

The number of private sector houses from the March quarter to June quarter increased by 5.7% seasonally adjusted. For the past 12 months including the June quarter, the positive trend continued, showing an 8.9% change upwards. Other private sector residential building, such as units and apartments, was up by even more at 9.3%.

Building materials supplier Boral (ASX: BLD) has been increasing its revenue over the past three years, although it realised a net loss of $212 million in 2012 due to a net $328.1 million write-down in asset values. This stronger building data will help it see a better financial year, and a consensus of analyst forecasts has earnings per share (EPS) going from 15 cents to 37.3 cents over the next three years.

Fibre cement building products producer James Hardie (ASX: JHX) will also benefit from a rising domestic property market and a revived US housing market, where 69% of its revenue is made. A lower Aussie dollar will also help its profits when earnings are translated back with a more favourable exchange rate.

Its earnings forecasts also projected to rise from 13.6 cents per share to 62.4 cents over the next three years. It just hit a new all-time high of $10.98 a share in September, and currently has a price-earnings (PE) ratio of 77, so the market has already priced in a great recovery in earnings.

Fletcher Building (ASX: FBU) is forecasted to double earnings per share and CSR (ASX: CSR) to more than triple over same time period. Their respective PE ratios are 20.7 and 37, so investors are late now for any bargains.

Foolish takeaway

The turning point for all four of these stocks was about June 2012, when they all started trending up, and the building activity figures finally went positive in the December 2012 quarter that was reported in April of this year.

That’s why it pays to do your investing homework a little bit every week, and note when changes are occurring for your stocks and their industries. If the previous market downtrend is flattening and not making new bottoms, then that’s the time you start making your favourite stocks list when they are still at reasonable prices.

Think about your own total return and find out about companies with good dividends. Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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