James Hardie Shares Plummet Amid Concerns Over Azek Acquisition

Highlights:

• James Hardie (ASX: JHX) shares plunged nearly 20%, hitting $37.78—its lowest level since June 2023—after announcing the acquisition of U.S.-based Azek.
• Investor concerns over valuation and capital dilution stem from the company funding the deal with a mix of shares and cash, along with doubts about the projected $350 million in synergies.
• Analyst opinions are mixed, with Morgan Stanley upgrading the stock to overweight while Macquarie downgrades it to neutral, citing potential dilution in returns.

Stock Decline Raises Investor Worries

James Hardie Industries plc (ASX: JHX) has seen its shares fall to their lowest level in nearly two years following its announcement of the acquisition of U.S.-based Azek. The deal, valued at approximately 23 times earnings, has raised concerns among investors about potential overvaluation.

Market Reaction and Analyst Perspectives

At the time of writing, James Hardie’s stock has plunged nearly 20% since Monday’s market open, trading at $37.78 near 3 PM today—its lowest point since June 2023. Investors are particularly wary of the dilution in the company’s return on capital due to the funding structure, which involves a mix of shares and cash. Skepticism also surrounds the company’s projected $350 million in synergies expected from the acquisition.

Analysts Provide Mixed Reactions

Shares dropped another 5% on Tuesday despite varied analyst opinions. Morgan Stanley upgraded James Hardie to an overweight rating, citing its strong fundamentals and predicting a volatile trading period as investors absorb the details. The firm noted that the current stock price suggests a price-to-earnings ratio of 15.6x, dropping to 12.7x by FY28, which it sees as attractive compared to the company’s five-year average of 21x.

Conversely, Macquarie downgraded the stock to neutral, expressing concerns about the deal’s impact on James Hardie’s historically high return on capital. Macquarie highlighted that Azek delivered an estimated return of around 13% in the 12 months leading to December 2024, significantly lower than James Hardie’s pre-acquisition return profile of 55%.

Outlook Moving Forward

With investor sentiment divided, James Hardie faces a period of market volatility as stakeholders assess the long-term impact of the Azek acquisition on the company’s financial health.

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