The market didn't like what Boral Limited (ASX: BLD) had to say during last month's reporting season with the share price shedding around 3% to $6.62 on Friday.
It's not anywhere close to being the worst performer of the reporting season – just look at Domino's Pizza Enterprises Ltd. (ASX:DMP) or Harvey Norman Holdings Limited (ASX: HVN) – but sentiment towards this high flyer has clearly been dented!
Investors weren't impressed enough with the good growth in its Australia business and the better-than-consensus forecast increase in net profit of 9% to $342.7 million (consensus had pencilled in $315 million) as Boral's US businesses failed to deliver the goods.
It's a glass half empty view, but I can sympathise as Boral is priced for near perfection with a FY17 price-earnings multiple of around 19 times. Stocks that trade on a market premium can expect to be punished for every blemish on their report card.
But those willing to take a medium to longer-term view on the stock should put Boral on their radar. Despite its shortcomings, I think the stock is still well placed to outperform in the current financial year.
For one, Boral provides good US exposure. I believe US building activity will be strong over the next 12 months or longer (in part due to the rebuilding of cities and towns in Texas following Hurricane Harvey) and that the US dollar will start to regain ground against the Aussie, which provides the stock a double tailwind when earnings are translated back into Australian dollars.
Further, the outlook for Boral also looks pretty positive. While no specific guidance was given, management is expecting growth across all its divisions and said that it is targeting synergies of more than US$100 million by year four of its acquisition of US business Headwaters.
It is pleasing to note that more growth can be extracted from its local operations too given its solid FY17 performance, which is one of the key reasons behind the stronger-than-expected profit result (the other being a lower tax rate, which the market understandably didn't warm to very much).
Another thing that should add confidence about Boral's outlook is commentary from brokers following the soft result. The major brokers who had a "buy" call on the stock before the result have reiterated their bullish recommendations on the stock and Credit Suisse has gone a step further by upping its price target on Boral to $7.30 a share from $7.05.
I suspect investors won't have to wait long to see more positive news coming from management either.
Looking for another great buy idea? The experts at the Motley Fool have uncovered an interesting little gem. Click on the free link below to find out what this stock is.
