The ASX 50 index is home to many of the highest quality companies that the Australian share market has to offer.
And while not all shares in the index are necessarily in the buy zone right now, one that could be is named below.
This ASX 50 stock has been rated as a buy by analysts at Goldman Sachs and tipped to rise strongly from current levels.
Which ASX 50 stock?
The stock in question is building materials company James Hardie Industries plc (ASX: JHX).
It has just released its first quarter update and revealed a stronger than expected performance during the three months. Goldman Sachs commented:
1Q25 ahead of expectations. Underlying NPAT of US$178m was above the US$155-175m guidance range and 6% ahead of GSe and Visible Alpha Consensus. Within this, North America missed by 1% (weaker volume partially offset by better margins despite ~US$8m in start-up costs /impairment charges). Both APAC and Europe were ahead of GSe.
However, this strong performance was offset by weaker guidance for the second quarter. It adds:
2Q guidance disappointed. North America volume guidance of 705-735 mmsf (down MSD-HSD% yoy) was -8%/-7% vs prior GSe and consensus at the mid-point. This reflects continued pressure on R&R volumes and a softening outlook for new construction. The volume declines are compounded by an anticipated acceleration in input/start-up costs in North America (margin guidance 27.5-29.5%). 2Q group NPAT guidance of A$135-155m was -14%/-13% vs prior GSe and consensus at the mid-point. That said, with the 1Q NPAT beat, the implied 1H25 guidance is -4%/-3% vs prior GSe and consensus at the mid-point.
In light of this, the broker has downgraded its earnings estimates slightly and now expects the ASX 50 stock to hit "the mid-point of the [FY 2025] guidance range vs high-end previously."
Big returns
Goldman remains very positive on the ASX 50 stock and believes its shares are undervalued by the market.
In response to the quarterly update, the broker has retained its buy rating with a trimmed price target of $55.85. Based on the current James Hardie share price of $48.37, this implies potential upside of 15.5% for investors over the next 12 months.
Commenting on its buy rating, Goldman concludes:
As a result of our earnings changes (partially offset by updated reference multiples), our DCF & EV/EBIT based TP declines 3% to A$55.85. Notwithstanding the forecast revisions we believe that the share price is broadly capitalizing earnings at GSe cyclically subdued FY25 forecasts levels and well below our FY26e estimates. Retain Buy.
