James Hardie’s JHX fiscal 2025 revenue of USD 3.9 billion was flat while adjusted EBITDA fell 4% to USD 1.1 billion on margin compression from higher raw material costs and lower North American sales volumes. Guidance is for low-single-digit revenue growth in fiscal 2026.

Why it matters: Soft earnings met our expectations and guidance. But we also lower our fiscal 2026 EBITDA forecast for James Hardie before the merger with Azek to USD 1.1 billion, from USD 1.3 billion previously, given the sedate outlook. However, our longer-term forecasts for Hardie’s business are little changed.

  • More importantly, we’ve taken another look at the Azek deal and are now of the view it is likely value-destructive. We think the products are less differentiated than Hardie’s and the industry more competitive. We no longer ascribe the full cost and sales benefits management expects.

The bottom line: We downgrade our fair value estimate 13% to $48 per share for wide-moat James Hardie, reflecting the inclusion of Azek in our estimates and our assessment that the business is weaker than Hardie’s. We think it will be difficult for the combined group to make up for the premium offer price.

  • We think the deal is value-destructive, but the shares have fallen more and trade at a substantial discount. While we share market concerns on the high price and ability to extract deal benefits, we think those concerns and the weak near-term outlook mean the price has overreacted.
  • Our Morningstar Uncertainty Rating worsens to High, from Medium previously. This reflects the more discretionary nature of Azek’s products, coupled with the significant additional debt James Hardie plans to take on to complete the deal.

Between the lines: James Hardie is feeling softer demand in its main segment of North America, with sales volumes down 3% in fiscal 2025. Double-digit declines were felt in the multifamily, premium single-family siding, and interior product segments.

Our Morningstar Uncertainty Rating for James Hardie is High

Our rating reflects the company’s exposure to the cyclical housing markets of the US, Australia, and Europe. Healthy EBIT margins, efficient cost control, and the firm’s generally strong financial position provide some offset to end-market cyclicality.

High interest rates typically dampen housing demand, including the company’s core North American market. We expect new housing starts and renovations and remodeling, or R&R, to soften sales volumes in the near term. In R&R, siding is not an urgent house maintenance product, and we think homeowners are more likely to delay residing when the interest rates are high, rather than choosing a cheaper alternative.

Inflation is also a risk. Even though James Hardie has historically been able to increase prices, margins can still come under pressure if input costs rise quickly. This is more likely to be felt in the new home build market where the firm earns about one-third of North American EBIT because homebuilders are more likely to have locked in prices in advance or have pricing agreements. As such, we believe this is less of a risk in the consumer-oriented R&R market.

James Hardie’s environmental, social and governance risk is medium, with carbon emissions from manufacturing the key contributor. The manufacture of fiber cement panels is both carbon and energy-intensive, requiring gas and electricity as key inputs. At the end of calendar year 2022, the firm had reduced scope 1 and 2 greenhouse gas emissions by 26%, against its goal of a 42% reduction in reduction in scope 1 and scope 2 greenhouse gas intensity by 2030 and net zero carbon emissions by 2050.

James Hardie bulls say

  • James Hardie’s US segment continues to take market share from lower-cost alternative siding materials such as vinyl and wood, despite higher prices, and a downturn in residential spending.
  • Economic cycles aside, James Hardie’s wide economic moat provides a strong defense for long-term earnings and returns.
  • About one-fourth of all new house builds in the US use fiber cement siding, supporting the firm’s future repair and renovation pipeline as these homes will eventually need residing or repairs.

James Hardie bears say

  • High interest rates are likely to dampen demand for new housing.
  • US homebuyers could continue a shift toward multifamily units rather than single family, causing fiber cement siding demand to decline.
  • Despite two decades in the region, uptake of fiber cement in Europe has been slow and meeting midterm financial targets in this segment seems unlikely.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.