James Hardie Industries N.V. (ADR) (NYSE:JHX)

CAPS Rating: 3 out of 5

The Company manufactures and sells fiber cement building products for interior and exterior building construction applications.

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Player Avatar mrindependent (96.18) Submitted: 3/29/2010 1:24:12 PM : Underperform Start Price: $32.35 JHX Score: +8.81

James Hardie produces fiber sement building products in the US, Australia and Europe. The company's price has increased 150% over the last year (because????). Althought this company lost $204 million last year, the stock is priced as if its expected "turnaround" is a certainty. Estimated 2010 earnings are $1.37 per share and estimated 2011 earnings are $1.96 per share. I see a company that frequently disappoints and persistently destroys shareholder value. The following data illustrates my point: 03/2000 book value per share- $3.01; 03/2009 book value per share- negative $1.26. Shareholders ought to be nervous because the company has utilized all of its debt capacity and it has an unfunded asbestos liability of approximately $650 million. The current share price of $32.19 seems unsustainable. Caps 2, Stockscouter 5.

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Member Avatar JakilaTheHun (99.94) Submitted: 4/7/2010 3:17:41 PM
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Without digging into it very deep, it does look like it might be a bit overvalued, but I'm not sure that the declining book value is that huge of a deal, given their rather sizable dividend. Of course, if that dividend were to get undermined, that would probably be the impetus for the stock to fall downwards significantly.

Member Avatar mrindependent (96.18) Submitted: 4/7/2010 5:24:22 PM
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Jakila,

Congratulations on your recent admission to a top tier MBA program. I suspect you have an extremely bright future ahead of you at an investment manager or REIT. I would hire you in a minute if I ran a large mutual fund or hedge fund. (Alas, I do not.)

I don't expect a huge downwards plunge. I simply think the stock is unlikely to outperform- so this underperform pick is not a recommendation to go short. The destruction of book value primarily resulted from the increase in asbestos liability that occurred from 2005 through 2008. Despite incurring losses on a GAAP basis, James Hardie kept paying outsized dividends as a way of making sure shareholders "got something" in case of total litigation disaster. I think the dividend is currently suspended, so there is some risk of an upside surprise if the dividend gets reinstated in the near future.

Member Avatar JakilaTheHun (99.94) Submitted: 4/8/2010 10:12:52 AM
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I hadn't realized the dividend was suspended. Apparently, CAPS hasn't updated the yield since then.

Actually, think I'm going to go along with you on this one the more I look into it. I'm very bearish on cement right now; largely because I don't expect the construction market to improve for at least a few years. Given that the dividend has been suspended and a rather bearish outlook for their products, I'm not sure why it is so aggressively valued.

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