Citigroup Upgrades James Hardie Industries To Neutral, Says 'Quality Name Priced For Earnings Growth'

James Hardie remains "a quality company leveraged to US single housing with starts still 25 percent below mid-cycle levels." The brokerage sees growth in interiors and R&R volumes as more significant to the earnings story, despite the market's emphasis on U.S. single housing.

"Consensus may have been disappointed with 1H17 EBIT impacts from SG&A and plant commissioning costs; however, we saw messaging from management to expect 20–25 percent EBIT margins as an important moderation of overly bullish expectations," analyst Simon Thackray wrote in a note.

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"With ND/EBITDA at 0.8x (after July-16 asbestos payments) vs a targeted 1–2x, double-digit EPS growth in FY17–18e looks achievable via macro tailwinds, PDG growth and balance sheet flexibility," Thackray added.

The company has "sensibly" tightened FY17 NPAT expectations, guiding $260 million–$290 million versus consensus at $264 million–$302 million. Thackray said the company is set to benefit from the ongoing U.S. housing recovery, and attractive operating margins.

The next likely catalyst for the company would be the U.S. investor tour on September 15–16, 2016.

ADRs of James Hardie closed Friday's regular trading session at $16.20.

Full ratings data available on Benzinga Pro.