Why this beaten-down ASX 200 stock can jump 24%

Goldman Sachs thinks this sold off stock could generate big returns for investors.

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The James Hardie Industries plc (ASX: JHX) share price was sold off on Tuesday.

The building materials company's shares ended the day a sizeable 15% lower at $46.67.

Investors were hitting the sell button in response to the release of the ASX 200 stock's fourth quarter and full-year update.

James Hardie reported record fourth-quarter sales of US$1,004.9 million and record full-year sales of US$3,936.3 million. However, despite this strong top-line performance, its earnings fell short of expectations for the fourth quarter.

And putting further pressure on the ASX 200 stock was its guidance for FY 2025, which was well below consensus estimates.

Broker reaction

Analysts at Goldman Sachs have been looking over the results. They note that James Hardie's fourth-quarter profit and guidance for FY 2025 disappointed. The broker said:

4Q24 result slightly below GSe. 4Q24 underlying NPAT of US$174m was 2% below GSe/Visible Alpha consensus estimates of US$178m/177m. Within this, EBIT of US$233m was 2% below GSe with sales 1% above GSe. JHX had previously guided to group NPAT of US$165-185m.

FY25 guidance disappoints. JHX issued group adjusted net income guidance US$630-700m vs prior GSe at US$761m and consensus at $762m (i.e. 13% lower at the midpoint).

Is this ASX 200 stock of good value after the sell-off?

Despite the disappointment, Goldman remains positive on James Hardie and believes yesterday's selloff has created a buying opportunity for investors.

In response to the update, the broker has reiterated its buy rating on the company's shares with a reduced price target of $57.85 (from $61.65).

Based on its current share price of $46.67, this implies a potential upside of 24% for investors over the next 12 months.

To put that into context, a $10,000 investment would grow to become worth $12,400 if Goldman is on the money with its recommendation.

Why is Goldman staying bullish?

Goldman believes that the market is undervaluing the ASX 200 stock even after lowering its earnings estimates for the near term. It explains:

As a result of our earnings changes (partially offset by updated reference multiples), our DCF & EV/EBIT based TP declines 6% to A$57.85. Notwithstanding the forecast revisions we believe that the share price is capitalizing earnings levels that are below both FY25E GSe and (more meaningfully) FY26E levels.

We see upside from cyclical improvement and strategic execution against higher value product mix targets, which has scope to substantially improve group profitability.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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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