six brokers say hold three buy

US Housing Market Remains Tough For James Hardie, Rinker
FN Arena News - December 11 2006

By Chris Shaw

Credit Suisse has released its US November Homebuilder survey, the data allowing the broker to update on the outlook for both James Hardie (JHX) and Rinker (RIN).

The survey showed a continuation of what have been very tough market conditions, with the broker noting sales are continuing to come at the expense of margins while prices are being pushed lower thanks to an inventory overhang.

For James Hardie the broker points out since the beginning of the company's financial year on April 1st the key markets of Texas, California and the Carolinas have all weakened further, which indicates earnings risk in the near-term is to the downside as the company generates 70% of its US revenue from the housing sector.

Despite this there is no change to the broker's Outperform rating, as it continues to expect a resolution of the asbestos liability issue will result in a revaluation of the company as market valuations will again be based on its underlying fundamentals, which it suggests is not currently the case. It also expects the stock to be a beneficiary from the merger and acquisition activity currently taking place in the sector.

The outlook is much the same for Rinker in that the company is finding the current environment a tough one, especially in its key state of Florida. The broker suggests as a result the company will find it more difficult to achieve volume and pricing growth this year, so maintaining margins will be the key.

To this end management appear to have been successful, as the broker notes the company recently confirmed earnings guidance for the year at US84-US90c.

The share price remains subject to the market's view on the current takeover offer by Cemex, with the broker continuing to suggest the bid could be increased from its current level. On its estimates a bid of US$17.00 would still be accretive to Cemex's earnings, while full utilisation of its funding arrangements gives the company the capacity to pay as much as US$14.80.

Credit Suisse's positive view on James Hardie is shared by much of the market, as the FNArena database shows the stock is rated as Buy seven times and Accumulate, Hold and Reduce once each. The average target price is $9.58, well below the broker's $10.30 target.

Rinker is seen as a Hold by six of the broker's and researchers to cover the stock, while three rate it as Buy according to the FNArena database. The average price target is $18.51, again well below Credit Suisse's $20.35 target.

James Hardie shares are stronger in today's trading, the stock at 3.10pm up 5c at $8.35. In contrast Rinker has fallen slightly to be 9c lower at $18.19.