The James Hardie Industries PLC (ASX: JHX) share price is changing hands 0.04% lower at lunchtime today, at $41.34 a piece.
James Hardie shares have had a rollercoaster throughout the first half of the calendar year. The share price plummeted 36% from $51 per share in mid-March. The drop followed the building materials giant's announcement that it would acquire outdoor living products manufacturer The AZEK Company Inc (NYSE: AZEK) for US$8.75 billion.
Since then, the share price has slowly risen, rebounding 28% since the low point. However, the stock is still trading 23.35% lower than the start of the year.
But in a recent note to investors, Macquarie Group Ltd (ASX: MQG) revealed that it is optimistic on James Hardie.
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Macquarie's new stance on James Hardie shares
Macquarie has raised its recommendation on James Hardie shares to outperform, up from neutral. The broker has also raised its target price to $46.80, up from $39.80 previously.
The new target price presents a potential 13.22% upside for investors over the next 12 months.
"While market conditions are far from ideal, and pinpoint clarity on a recovery in activity is hard to be precise about, we think the valuation reset and an evolving synergy story are key attractions," Macquarie said in its note.
Recent stock performance has been driven by derating in large part, although a softer macro context and the financial effects of the AZEK deal have pressured earnings expectations (with more to come as consensus fully includes the deal).
We think it notable that trading activity in the NYSE listing has increased materially. Over time, we think this may bring the comparison with TREX's premium multiple (+40%) increasingly into focus, especially if JHX is able to elevate the focus of US-based investors on its siding business and deliver on the AZEK integration. Our analysis suggests there is much more to it, if successful.
But some concerns remain
While the broker is optimistic about James Hardie's valuation, it is still concerned about the macroeconomic environment in the near term.
It notes that consumer confidence has been under material pressure in recent months, with particularly worrying developments amongst the US' top income groups.
"We think this sets up a muted 2H25 for R&R demand, in particular, while weighing on new construction – it is clear that spring selling season was a disappointing one this year," the note said.
The broker added:
Hardie's defence has been its strong strides with major builders, where share gains are solid and activity remains surprisingly robust.
In this context, we expect 1QFY26 NPAT of USD160.8m (broadly in line with Visible Alpha Consensus), down 10% YoY, when the company reports results on 20 August. We think management will set a muted, but expectant, tone that focusses on the integration opportunity ahead with AZEK.
