James Hardie shares extend losses after Macquarie downgrade
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The news: Shares in James Hardie Industries dropped for the second straight session after the building materials group announced the $14 billion acquisition of NYSE-listed The AZEK Company on Monday.
The numbers: James Hardie shares were down 4% to $38.40 at 11am AEDT after shedding 14.5% in the previous session.
Macquarie has downgraded its rating on the stock from 'outperform' to 'neutral' and slashed its target price from $65 to $44.
The context: Macquarie analysts said AZEK is an "attractive asset" with a strong historical growth profile. It also solves a weakness in James Hardie's trim products, and has a similar go-to-market strategy which should assist with synergies, they said.
However, the analysts said the deal was at a 26% premium and is consequently a "disappointing outcome" for the company and likely to "dilute returns materially".
What they said: "We recently noted our concern about a large-scale, value-diluting deal — this has realised our concern," the analysts said.
"[James Hardie's] unique return profile in building products is very hard to replicate and while AZEK may be strategically attractive, the valuation and metrics detract, undermine the investment thesis."
The source: Macquarie research
