James Hardie Industries plc (ASX: JHX) shares are 2.4% lower on Wednesday morning. At the time of writing the shares are trading at $27.27 a piece. Over the month the shares are now down 18.3%, and 51.3% lower than this time last year.
The company announced its Q2 FY26 update yesterday morning, where it revealed a strong increase in net sales. However, on the bottom line, James Hardie posted a net loss of US$55.8 million.
In the announcement, the company also lifted its sales estimates and earnings guidance for the 12 months. The latter sees management targeting adjusted EBITDA of US$1.2 billion to US$1.25 billion in FY26. This is up from its previous guidance of US$1.05 billion to US$1.15 billion.
The announcement saw the shares close the day 10.4% higher, ahead of this morning's sell-off.
When the fibre cement building product producer announced its Q1 FY26 results in August, its share price suffered a catastrophic 36.5% share price plunge.
Following the results announcement yesterday, Macquarie Group Ltd (ASX: MQG) brokers have updated their outlook on the shares.
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Macquarie tips huge upside ahead for James Hardie shares
In a note to investors this morning, the broker has confirmed its outperform rating on the stock. It has also raised its 12-month price target to $41.70, up from $40.60 previously.
At the time of writing this implies a potential 52.9% upside for investors.
"Valuation: We increase our 50/50 DCF/SOTP-based TP to $41.70 (from $40.60), reflecting earnings changes and a reduction of NAM multiples by 1x as EPS expectations recover. Our TP implies an EV/EBIT of 16.8x (versus a ten-year average of 16x)," the broker said in its note.
Market conditions are tough, but stabilising – inventory concerns are fading. Focus now turns to rates and housing policy. An evolving AZEK integration story, a bottoming of markets, and valuation are in support of our thesis. Governance changes also seen as additive.
Earnings changes: We raise FY26/27/28E EPS 10%/5%/2%, reflecting the revised management outlook. The group is managing manufacturing efficiency actively, realising cost synergies and seeking high-value growth in decking and siding.
What does Macquarie have to say about the company's Q2 results?
Macquarie analysts said that changes in governance structures, with the appointment of Nigel Stein as Chair and Jesse Singh to manage the AZEK integration process at a board level are positive moves.
"While we found it a noisy and messy result with material below-the-line adjustments of deal expenses, the core performance was as guided. Interest and tax effects did drive an NPAT beat," the note said.
The broker added that the FY26 outlook upgrade well exceeded 2Q FY26 outperformance of previous guidance. This was helped by a relatively rapid channel destock, and, Macquarie believes, near-term equilibrium in the new construction market.
Market conditions remain weighed by uncertainty, but we believe JHX's August downgrade has encapsulated this risk well, seemingly.
Going forward, macro conditions and policy shifts are likely to be key. James Hardie's operational performance has stabilised as the value chain has settled.
In this context, we believe the business is well positioned to gain from any volume improvement.
