Morningstar | Luke-Warm U.S. Housing Starts May Soften Hardie’s 4Q 2019 but Shares Remain Attractive
We previously flagged the need for strong U.S. housing starts in narrow-moat James Hardie’s fourth-quarter fiscal 2019. And while January was a robust showing indeed, housing starts underwhelmed in February. The required 930,000 seasonally adjusted annualised rate, or SAAR, of single-family starts in Hardie’s fourth quarter has clearly proven elusive and a slight miss of our full-year fiscal 2019 EBIT forecast of USD 442 million is therefore possible. Should March single-family housing starts match February’s SAAR of 805,000, full-year fiscal 2019 starts will come in 2.5% below our forecast. That outcome would correspond with a circa USD 5 million EBIT miss relative to our forecast. However, with the possibility of primary demand growth (market share gains), surprising to the upside, we maintain our forecasts. Hardie continues to look attractive, trading at a 15% discount to our unchanged fair value of AUD 21.20 per share.We maintain our positive outlook for U.S. housing construction over the coming five years, in spite of the recent tempering of housing starts. We also note the recent moderation in price growth of existing housing stock. Following steady growth in house prices since the housing market bottomed in February 2012, the S&P Corelogic Case-Shiller U.S. National index--which tracks U.S. existing single- family house prices--has flatlined since October. Resurgent residential property prices would provide renewed impetus for home construction. But we still see construction activity moving higher and continue to forecast activity peaking in fiscal 2024 at 1.575 million total starts. A strong labour market and a more dovish tone from the Fed that has pushed mortgage rates in the U.S. to one-year lows are conducive to activity tracking higher. Encouragingly, the spring selling season looks off to a strong start with homebuilder order books and mortgage applications displaying revived momentum.
James Hardie Industries is engaged in the manufacturing and selling of fiber cement products and systems for internal and external building construction applications in the United States, Australia, New Zealand, the Philippines and Europe. Co.'s fiber cement products are used in a number of markets, including new residential construction, manufactured housing, repair and remodeling and a variety of commercial and industrial applications. Co. manufactures numerous types of fiber cement products with a variety of patterned profiles and surface finishes for a range of applications, including external siding and soffit lining, internal linings, facades, and floor and tile underlayments.
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