Down 35% in a year, this ASX 200 share offers 'a buying event' right now: Citi

Citi is looking through James Hardie's weak Q3 results to the long-term opportunity this ASX 200 share presents.

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Key points

  • Broker Citi says James Hardie is a buy despite the company reporting a weak set of results for Q3 FY23 yesterday 
  • Housing downturns in North America and Asia-Pacific led to "lower than expected" sales in Q3 FY23 
  • Citi says the market will be looking for the last downgrade in earnings for the ASX 200 share "and we think this could be it" 

The James Hardie Industries plc (ASX: JHX) share price is up 3.03% to $31.32, while the S&P/ASX 200 Index (ASX: XJO) is in the red this morning, down 0.53%.

The James Hardie share price took a hammering yesterday after the company released weak Q3 FY23 results.

As we reported, the ASX 200 share tumbled by 8% in early trading before recovering and closing down 4.25%. Over the past 12 months, the James Hardie share price has dropped by 34.36%.

But one broker is looking through the bad news, seeing a long-term opportunity with the ASX 200 share.

Weak Q3 result 'a buying event' for ASX 200 share

The housing downturns in the United States and Australia have taken a toll on the building materials supplier.

James Hardie reported a 4% dip in sales in Q3 FY23 compared to Q3 FY22 and a 19% drop in adjusted earnings before interest and taxes (EBIT).

The weak result prompted James Hardie to lower its FY23 full-year guidance considerably.

The company now expects adjusted net income in the range of US$600 million to US$620 million. This is down from the previous guidance of US$650 million to US$710 million.

According to reporting in The Australian today, Citi analyst Samuel Seow says the company is "attractive", trading on an FY24 "trough earnings" multiple of 19 times.

Seow said:

Following a weaker than expected result, we believe the market will be looking for the last downgrade and we think this could be it.

Ironically, we see [the Q3] result as a buying event and the total shareholder return outlook should be positive from here.

Seow says the ASX 200 share is "close to an inflection". He points to the improvement in United States mortgage applications and the 30-year fixed rate "appearing to settle".

Seow maintains a buy rating on James Hardie but has lowered his 12-month share price target by 6.5% to $34.60.

What did James Hardie management say about Q3?

James Hardie CEO Aaron Erter said the company saw the current period "as an opportunity".

He said they were cutting costs while continuing to "significantly invest in strategic growth initiatives".

Erter commented:

We are managing quickly and decisively to accelerate our competitive advantages through this market downturn and we view this time as an opportunity.

… we remain aggressive, and we are laser focused on driving profitable volume share gain in every region and segment we do business in.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bronwyn Allen has positions in James Hardie Industries Plc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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