Analysts at RBC Capital Markets have come away from meetings with James Hardie Industries Plc (ASX: JHX) convinced the company's long-term growth and cost-cutting programs are on track and have a bullish price target in place.
RBC analysts held meetings with executives recently, including Joe Ahlersmeyer, James Hardie's Vice President, Investor Relations, at the RBC Global Industrials Conference.
We came away from the meetings with the sense that: (1) long-term material conversion runways for both siding and decking remain intact; (2) Hardie remains upbeat about synergy capture and its opportunities for growth; and (3) uncertainty around the pace of activity through the balance of the fiscal year and the potential for further associated destocking likely led Hardie to embed some degree of conservatism in its guidance.
RBC has a bullish price target of $35 per share on James Hardie stock, well above Thursday's price of $28.54. If realised, this would represent a return to shareholders of 22.6%. James Hardie has not paid a dividend since July 2022.
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Synergies from takeover to flow
James Hardie completed the US$8.4 billion takeover of US building products company AZEK in July and is in the process of integrating the business and stripping out cost savings.
RBC said in its note to clients that James Hardie management was confident that bringing the two businesses together would create opportunities to cross-sell across the product lines.
In addition to cross-selling opportunities, Mr. Ahlersmeyer noted differences in geographic penetration, and cited Maine as an example where AZEK has significant penetration relative to Hardie, which can potentially help facilitate Hardie's growth in the market. When discussing cost synergies, management noted good initial progress and sounded confident about opportunities to share best practices between the two companies over time.
RBC said James Hardie was focused on deleveraging and wants to hit a target of two times net debt to earnings, "with a more immediate goal of getting under 3x as soon as possible''.
"While there could be room for repurchases in an upside scenario, deleveraging remains the priority in the near-term," RBC said.
Housing affordability has been an issue for the company, RBC said, with James Hardie selling a premium product.
The company's positioning as a nationally-scaled and reliable supplier of a well-liked product (which it stated can help sell homes faster and at higher price points) has been key in winning new business. Regarding material conversion, Hardie continues to see an opportunity to take share from vinyl, and noted that its products' penetration as a secondary siding material (where multiple materials are used on a single home) is also quite strong.
