Death of the high PE

Posted on | by Leon Hinde | Leave a Comment on Death of the high PE

We’ve been warning about a number of ASX large cap stocks which trade on 25X earnings and 2% yield and, at best, will deliver low single digit earnings growth.

Two examples are the recent sell signal posts we’ve made on Computershare and James Hardie.

We feel that the day of reckoning is approaching and, in many instances, as seen in CPU & JHX, the selling has already started and we’re now seeing a retracement back to the mean, (and likely beyond).

We’ll leave the 150x PE of Amazon, or the 200x PE of Netflix for a future  posting, but suffice to say; reality will soon hit.

Chart – CPU
Chart – JHXASX:JHX

 

 

 

 

 

 

James Hardie Hammered As Profits Drop 34%

Posted on | by Todd | Leave a Comment on James Hardie Hammered As Profits Drop 34%

Shares of JHX have dropped over 3% in early trade as the building materials supplier announced Q1 profits fell 34% to $USD 57 million.

JHX reported that net sales for the three months to June 30 have grown 6% to $USD 507 million, compared to the same period last year.

However, it said earnings margins were under pressure from higher production costs and increased competition in the construction materials sector.

At 26x forward earnings with a 2.7% forward yield , we’ve been advising clients about the risks of the low dividend, high P/E posture of the stock since it traded in the $22.50 area in early May.

We now see the next downside target for JHX in the $17.60 area.

James Hardie

 

 

Has The AUD Reached The RBA’s Pain Level?

Posted on | by Todd | Leave a Comment on Has The AUD Reached The RBA’s Pain Level?

At the start of the year, the market consensus was for the Aussie Dollar to fall against the major currency pairs during 2017. So far this year, the AUD/USD has climbed 10% and almost touched .8000 last week.

At 1pm today, RBA chief Philip Lowe will be giving a speech in Sydney. Since many exporters look at .8000 as a pain level, it’s reasonable to expect Mr Lowe to comment about the level of the Aussie.

The strengthening AUD/USD has created a headwind for domestic companies with earnings exposed to the softening USD.

Four companies that we follow which have seen their share prices dampened due to a stronger Aussie are: BXB, CPU, ANN and JHX.

Australian Dollar

Computershare – Earnings Result 16th Aug

Posted on | by Leon Hinde | Leave a Comment on Computershare – Earnings Result 16th Aug

Computershare reports earnings on the 16th August.

At 20x forward earnings and 2.6% dividend yield, we feel CPU will likely disappoint and deliver earnings below market expectations.

Any bounce in CPU from these levels will provide an opportunity to consider building new short exposure.

Chart – CPU

James Hardie trades at 26x forward earnings with a 2.7% forward yield.

Again, we consider this name expensive and likely to disappoint investors when JHX report earnings on the 8th August.

A rally back towards $21.00 will provide an opportunity to reset short exposure.

Chart – JHXJHX

 

 

Weaker Housing Data Could Drag On US GDP

Posted on | by Todd | Leave a Comment on Weaker Housing Data Could Drag On US GDP

Prior to the market open on Friday, the US Commerce Department announced that Housing Starts fell fort a third straight month in May and has reached the lowest level of new home construction in eight months.

This development, along with a drop in Consumer Sentiment and Building permits, suggest that general construction has declined broadly during 2017 and could be a headwind to economic growth over the second quarter of the year.

This slowdown may have earnings implications  for the US divisions of Boral and James Hardie.

 

 

 

 

James Hardie Support At $18.00

Posted on | by Todd | Leave a Comment on James Hardie Support At $18.00

Regular readers will recall that we’ve had a bearish bias on JHX since it broke the $22.50 level in the early part of May.

At that time, the stock was trading at 27 times earnings on a 2.2% annual yield

A weaker US house construction market combined with a general contraction in US retail sales has kept shares of JHX offered over the last several weeks.

We maintain our downside target of $18.00 per share over the medium-term.

James Hardie

 

JHX Points Lower On Weaker US Housing Data

Posted on | by Todd | Leave a Comment on JHX Points Lower On Weaker US Housing Data

Since trading as high as $23.20 on May 2nd, shares of JHX have dropped over 14% and are now trading below $19.80.

We posted a report on the blog on May 19th pointing out that JHX reported FY17 results which were below market expectations.

Overnight, US New Home Sales fell to 569,000, well short of the consensus expectation of 610,000. As new home construction continues to slide, we sell further downside range extension for JHX.

The new key support level comes in near the February low of $18.20.

James Hardie

 

James Hardie – Earnings Update

Posted on | by Leon Hinde | Leave a Comment on James Hardie – Earnings Update

James Hardie  half year (ended 30 September 2016) earnings show net operating profit of US$141m, an increase of 10% on the same time last year. Group Adjusted EBIT for the half US$204 million, also up 10% on last year.

The James Hardie earnings update supports our view that JHX remains well positioned to benefit from the ongoing recovery in US housing construction.

Overnight, US housing Starts data was released. On an annualised basis, October data showed 1.3m in October compared to expectations of 1.1m. Building Permits annualised 1.23 in October compared to expectations for 1.2m

FY17 revenue US$2b, EBITDA US$470m, EPS US$0.60 and DPS $0.44, placing the stock on a forward yield of 3%. We expect EPS growth of 10%+ in to FY17 and FY18.

Our algorithm engines triggered a buy signal earlier this week.

jhx
Chart – James Hardie

James Hardie – Buy Rec Update

Posted on | by Leon Hinde | Leave a Comment on James Hardie – Buy Rec Update

We recently highlighted James Hardie as a buy recommendation and we therefore draw your attention to the upcoming 2Q earnings result scheduled for release on Thursday.

Consensus expectation for FY17 net profit is around US$275m. This will mean JHX is delivering 15%+ EPS growth. It’s likely that a positive earnings trend can be supported by stronger demand for its products from North American consumers.

FY17 revenue $2b,  EBIT $400m, NPAT $275, EPS $0.65, DPS $0.44 places the stock on a forward yield of 3%

jhx
Chart – James Hardie (JHX)