James Hardie Industries Plc (ASX: JHX) shares are edging higher on Thursday.
At the time of writing, the building products stock is up 1.15% to $40.38, while the S&P/ASX 200 Index (ASX: XJO) is flat at 8,983 points.
It has already been a strong year for shareholders, with James Hardie shares up around 30% since the start of 2026.
The stock traded above $43 in August before giving back some ground over the past few weeks.
So, is there still some upside left?
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Why Morgan Stanley is bullish
Morgan Stanley appears to think so.
According to The Australian, analyst Joseph Michael has James Hardie among the broker's top Australian industrial picks following reporting season.
He believes the company can keep growing faster than the broader market, helped by the AZEK acquisition, cost savings, and stronger cash flow.
Morgan Stanley estimates James Hardie could deliver around 19% more earnings than current market expectations by 2029.
And yes, that's a pretty bullish call, particularly while the US housing market remains soft.
The latest result also gave investors some reasons to be positive. First-quarter FY27 sales jumped 64% to US$1.47 billion, while adjusted EBITDA rose 79% to US$422 million.
On a pro-forma basis, which includes AZEK in the comparison period, sales still increased 12%.
Management also lifted its FY27 outlook and now expects pro-forma adjusted EBITDA growth of 7.4% to 13.7%.
Cash flow is heading higher
The balance sheet has been one of the key concerns since the AZEK acquisition.
But there were some encouraging signs in the last quarter.
Free cash flow more than doubled to US$254 million, and the company is still targeting at least US$500 million across FY27.
The planned $840 million Euro sale of Fermacell should also give the balance sheet a boost. Around US$600 million of the proceeds is expected to go towards paying down debt, which should help bring net leverage below 2 times.
James Hardie also announced a US$250 million share buyback alongside the sale.
Would I buy at $40?
I still like the look of James Hardie shares at these levels.
The stock has already had a strong run this year, so I would not expect another easy 30% gain from here.
In addition, broker sentiment is also positive. TipRanks shows 7 buy ratings and 4 holds, with an average price target of $44.84.
That's around 11% above the current share price.
And if the company keeps delivering on its growth plans, I think there could be more upside over the longer term.
