Ricardo Pillai
3 min read
In This Article:
We came across a bullish thesis on James Hardie Industries plc (JHX) on Directionally Correct Research’s Substack by Will Powers. In this article, we will summarize the bulls’ thesis on JHX. James Hardie Industries plc (JHX)'s share was trading at $25.76 as of 6th June. JHX’s trailing and forward P/E were 26.29 and 21.51 respectively according to Yahoo Finance.
Aerial view of a suburban home under construction, displaying its modern architecture.
James Hardie’s proposed acquisition of AZEK is a bold, potentially transformative deal that brings together two leading exterior building products: high-performance fiber cement siding and backerboard. Management forecasts $500M in commercial synergies by FY26, implying a $225M EBITDA contribution at 45% margins. But realization is far from guaranteed. Both companies rely on two-step distribution, and success hinges on distributors’ willingness and ability to push a broader, bulkier product suite.
Siding and decking, while adjacent categories, lack natural bundling—there’s no compelling homeowner rationale to undertake both upgrades simultaneously. Execution risk from integrating two independent sales forces further tempers optimism. Yet, if even half the synergies materialize, they still provide a meaningful uplift. Valuation assumes a conservative synergy haircut, normalized R&R growth, and stable pricing to drive ~10% top-line growth through FY28.
Margins expand as volume leverage kicks in, with Hardie’s North American EBITDA reaching 39% and AZEK hitting its 27.5% goal. Combined EBITDA surpasses $2.1B by FY28, with FCF conversion improving into the high 40s. A base 13.5x multiple implies a $44 share price and low-20s IRR; a rerating to 15x lifts it to $50. The deal’s timing—amid change-in-control incentives and before an NYSE relisting—raises questions of insider motivations and execution risk.
While the price tag looks steep and macro headwinds remain a threat to these discretionary categories, JHX remains a well-run compounder with expanding margins, strong cash generation, and potential index inclusion tailwinds. Investors willing to stomach integration risk and cyclicality may find value in what could be trough earnings and sentiment.
Previously, we covered a bullish thesis on Progyny (PGNY) by Will Powers in December 2024, highlighting its dominant position in fertility benefits, resilient cash flow, and post-Amazon client loss recovery. The stock has appreciated by approximately 47%. Powers frames PGNY as a cash-rich recovery play and JHX as a margin-expansion story with integration risk, offering distinct but complementary opportunities rooted in long-term structural growth.
