Why James Hardie is a favourite buy among leading brokers

The James Hardie Industries plc (ASX: JHX) share price dipped today after yesterday’s big run. This may be a good time to be buying as it’s a hot favourite among brokers.

Shares in the building materials group eased 0.5% to $28.49 in the last hour of trade as the stock consolidated its 7% plus surge on Monday after reporting a strong quarterly result.

In my mind, James Hardie stands a head taller than its peers like Boral Limited (ASX: BLD) as it’s a better quality stock in almost every regard.

This can be seen by what brokers are saying about James Hardie following its results. Just about every one of them has come out to reiterate their “buy” recommendation on the stock.

Price target upgrade

Goldman Sachs is impressed with the company’s strong operating performance, particularly in its US business.

The broker lifted its price target by 5.3% on the stock to $34.38 a share and reiterated its “buy” rating on the stock.

Credit Suisse upgraded its 12-month price target on the stock to $30.90 from $27.00 a share as the group’s volumes, margins and sales growth were ahead of expectations.

Management increased its forecast profit margin to between 27% and 29% from 22% to 27%.

The broker thinks that there is limited opportunity for negative surprises in James Hardie’s margin upgrade from “uncontrollable costs”.

Growing stronger for longer

UBS calls James Hardie “a clear standout” and believes the stock still offers value despite its recent outperformance.

“In our view, JHX’s performance through the depths of COVID-19 supports rising long term expectations for volumes [primary demand growth] and margins,” said the broker.

It said in the medium- to long-term, primary demand growth (PDG) will be supported by home owners going ahead with exterior remodelling work once restrictions ease and a return to strong housing activity. The record low interest rate environment and good demand for low dense living are supporting factors.

The broker increased its price target by $3 to $34 a share and it repeated its “buy” call on the stock.

Further upside for the James Hardie share price

JP Morgan is another to reaffirm its “overweight” call on the stock even though it’s yet to adjust its price target of $28.20 a share.

“A key highlight was management’s comment that primary demand growth (PDG) in the US is tracking ‘well ahead of 7%’,” said the broker.

“We’ve yet to factor today’s update into our model but, if we were to increase PDG to 8% and EBIT margins to 27% in the US, our FY21 EPS would move to 83cps, implying a P/E of 23x.”

While a price-earnings (P/E) of 23 times may sound fully valued to some and is inline with the industrials sector, JP Morgan pointed out that James Hardie trades at a 30% premium on average over the past seven years.

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Motley Fool contributor Brendon Lau owns shares of James Hardie Industries plc. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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