On Thursday, BofA Securities resumed coverage on James Hardie Industries (NYSE: JHX), issuing a Buy rating and setting a price target of $27.00. This decision follows James Hardie’s recent announcement on March 24, revealing plans to acquire The AZEK Company for $8.75 billion.
AZEK, currently valued at $7.17 billion, has been showing strong performance, with a 17% return in the past week. According to InvestingPro, the company is trading above its fair value estimate. As part of the acquisition, AZEK shareholders will receive $26.45 in cash per share, plus 1.0340 shares of James Hardie, which will be listed on the NYSE.
AZEK is known for producing composite and PVC decking, railing, and related building products. For the fiscal year 2024, the company reported $1.4 billion in sales and an adjusted EBITDA of $379 million. It maintains strong financial health, with a current ratio of 2.56 and a moderate debt level. AZEK’s acquisition is expected to close in the second half of 2025, pending regulatory and shareholder approvals.
BofA Securities highlights several long-term advantages of the deal. The acquisition would significantly expand James Hardie’s total addressable market (TAM). AZEK brings an additional $9 billion TAM in decking and related products, which complements James Hardie’s existing $14 billion TAM in siding and exterior products. The deal is also expected to increase James Hardie’s presence in the U.S. repair and remodel market, which remains stable due to the aging housing stock. The combined company would shift to a 70/30 repair and remodel to new construction exposure, improving from the current 65/35 split.
AZEK’s residential sales have grown at a compound annual growth rate (CAGR) of approximately 15% over the past seven years, contributing to its positive financial outlook. The company also boasts a 5-year revenue CAGR of 13% and a gross profit margin of 37.3%. Its strong operational efficiency is reflected in a Piotroski Score of 8. The acquisition is expected to generate commercial synergies, with James Hardie targeting $225 million in savings by fiscal year 2030. Research suggests that about 55% of siding contractors also work on decking projects, supporting this forecast.
Additionally, cost synergies are anticipated, with James Hardie aiming for $125 million in savings by fiscal year 2028. These savings are expected to come from manufacturing, procurement, and reductions in commercial and administrative expenses.
The acquisition also includes AZEK’s net debt of $386 million, which will push James Hardie’s revenue to approximately $5.4 billion and improve its EBITDA margin to 27%, according to Moody’s. Following the announcement, Moody’s placed AZEK’s ratings under review for a potential upgrade, reflecting the stronger governance and credit profile of James Hardie. Meanwhile, Wolfe Research downgraded AZEK’s stock from ‘Outperform’ to ‘Peer Perform’ due to concerns over the deal’s valuation.
Fitch Ratings has placed AZEK on a positive rating watch, anticipating that the merger will improve scale and product offerings. However, Fitch also noted a projected increase in EBITDA leverage to 3.7x. In contrast, Fitch revised James Hardie’s outlook to negative, citing concerns about the higher leverage following the acquisition. S&P Global Ratings has placed AZEK on CreditWatch with positive implications, suggesting potential improvements in credit quality post-acquisition.
These developments are crucial as they impact the financial and operational future of both AZEK and James Hardie.
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