Why this top broker sees 50%+ upside to the Boral share price

One broker is optimistic about the outlook for the construction materials giant.

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Key points

  • The Boral share price may have tumbled to around a two-year low but Macquarie believes it's oversold
  • Rising costs, a cooling housing market, and turmoil in the building construction industry are weighing on sentiment
  • But Boral has other growth levers to pull and Macquarie has pegged a $4.05 target on it, implying a 52% upside on its current share price

The crash in the Boral Limited (ASX: BLD) share price could spell opportunity with a leading broker highlighting a 50%-plus potential gain for the building materials supplier over the next 12 months.

The news will be a relief to embattled shareholders. The Boral share price has tumbled by more than 60% in the past year and it’s now hovering around a two-year low.

In contrast, the S&P/ASX 200 Index (ASX: XJO) is down a more modest 11% over the period.

Why the Boral share price got plastered

There are several reasons why investors have shunned Boral shares. The power crisis is one that’s weighing on sentiment as Boral is a big energy user.

The war in Ukraine sent power prices surging and that’s contributing to rampant inflation. This, in turn, is forcing central banks, including ours, to pull the handbrake by lifting interest rates.

Herein lies the second whammy for the Boral share price. Higher interest rates are rapidly cooling the housing construction market.

Building industry in trouble

There have also been a number of high-profile builders collapsing or coming close to bankruptcy in recent times. These include Probuild and Metricon.

There are warnings that more could be about to fall over as the sharp rise in building costs push many to the wall. These home builders can’t pass on rising costs to customers as the properties are sold through fixed-priced contracts that were signed before the inflation genie escaped from its bottle.

That puts Boral in an unenviable position. Demand for its products will be hit by a slowing housing construction market, while there’s a risk of bad debts if builders go under.

ASX building shares underperforming

The Boral share price isn’t the only one under the pump. Construction peers Adbri Ltd (ASX: ABC), Reece Ltd (ASX: REH), and James Hardie Industries plc (ASX: JHX) have also fallen out of favour.

But it isn’t all bad news. The analysts at Macquarie believe the sell-off may be overdone despite acknowledging the headwinds.

The broker said:

The sector has de-rated significantly as macro conditions deteriorate. While not a conducive context, we maintain a focus on stocks with alternative growth potential, R&R [remodelling and restoration] and infrastructure exposure.

How much is the Boral share price worth?

In that context, Macquarie reiterated its “outperform” recommendation on the Boral share price. It’s 12-month price target on the shares is $4.05 each.

Other shares in the sector that the broker likes include James Hardie, Adbri and Reliance Worldwide Corporation Ltd (ASX: RWC).

Motley Fool contributor Brendon Lau has positions in Macquarie Group Limited, Reece Australia Limited, and Reliance Worldwide Corporation Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Reliance Worldwide Corporation Limited. The Motley Fool Australia has recommended Macquarie Group Limited and Reliance Worldwide Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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