JHX reported FY17 results that were below market expectations. EBIT
of US$354m & NPAT of US$249m
At 27x earnings and a 2.6% dividend yield, combined with last week’s deteriorating new home sales data in the US, JHX has been one of our high conviction shorting opportunities.
Chart – JHX
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.
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%
The following group of stocks are in either established uptrends or, in recent months they’ve broken downtrends to begin building the early stages of a bullish “higher low” formation.
Many of these names have been mentioned previously in the blog and/or the monthly strategy video report. It’s worth loading these codes into your watch list and considering rebalancing your portfolio to include allocations towards some, or all of these names:
JHX, LLC, MQG, SHL, TWE, ANN, ANZ, ASX, CCL, CIM, COH, QUB, TAH, WOW & WPL.
With the lower growth names within the above basket, such as WOW & CCL, we compliment the position now with tight covered calls to enhance the yield to 10%+ per annum. With some of the other names, we give a little more breathing space as we expect 5 to 10% price appreciation before selling the call option overlay.
The following group of stocks offer above average earnings growth, structural uptrends and are currently trading back on support levels that warrant closer attention.
ASX, AMC, BXB, JHX RHC, SEK, SHL, SUN and TWE.
More detail on the Investor Signals portfolio allocations and derivative overlay strategy will be provided in the October ASX top 50 Video Market Report.
Sonic Healthcare (SHL.ASX)
Amcor (AMC.ASX)
James Hardie (JHX.ASX)
Lend Lease (LLC.ASX)
Newcrest (NCM.ASX)
Resmed (RMD.ASX)
For more analysis on our recent buy recommendations and market stratagey, please keep an eye out for tomorrow’s mid-week market update video report. It will be sent out tomorrow morning as a blog post.
Our algorithm engine is flagging the following stocks as potential buy on the dip alerts.
DMP.ASX
JHX.ASX
In today’s post we look at stocks recently commented on that require further attention, as profit taking is in sight or the entry level setups are now looking compelling.
NVT.ASX – Lift trailing stop loss to $5.25 support and retain profit target at $5.40
BLD.ASX – We had a buy recommendation on this at $6.20 and it has now rallied 10%+ to $6.85. Take profit on BLD and switch to JHX.
AMC.ASX – We see value in AMC at $15 only when complemented with a covered call strategy. Target is 7% capital growth, plus 2% from Feb div and 3% option premium. We have a six month time horizon on this trade.
ASX.ASX – Looks better value following the recent pullback and our algorithm engines are flagging a buy point.
The above charts summarise a few opportunities we’re watching. For further detail on our investment ideas, visit the monthly strategy piece or the recent mid week update.
If you have trouble locating the links to either of the above recordings, please email me.
leon@investorsignals.com
James Hardie (JHX.ASX) has now retraced back to $20.30 and our algorithm engines are flagging this as a buy signal. Strong EPS growth combined with the technical signals should set JHX up for a substantial rally. Our target range is $22+
Chart – JHX.ASX
At the end of last week, James Hardie (JHX.ASX) management provided FY17 NPAT guidance for $US260 – $290m which implies growth within our expected target range of 12 – 15%. These numbers reaffirm our buy on the dip strategy with JHX and FY17 EBITDA of US$500m, NPAT $275m, dividends per share (DPS) of US$0.45 places the stock on a forward yield of 2.8%.
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