KEY POINTS:
Surges in Fletcher Building's shares this month and the message from its board that it is on target to drive up earnings have prompted analysts to take a more bullish stance on the company.
Macquarie Research Equities, Deutsche Bank and Credit Suisse all upgraded their share price targets
after Tuesday's annual shareholders' meeting.
The shares were down 25c yesterday after hitting a record high of $10.20 on Tuesday.
Macquarie's Stephen Hudson had a $10.15 target late last month, later altered to $10.60. This week he reviewed that again to $10.76, saying the shares continued to trade below his target.
The company would benefit from leaky homes remediation, which could be equivalent to two years of new residential building work, he said.
Deutsche Bank's Emily Smith was the most optimistic, increasing the target from $9.62 to $11.01. Rising price-earnings ratios at Australian companies which worked in Fletcher's sectors prompted her to move.
Key risks for the company were climbing costs and a prolonged downturn in the Australian and New Zealand housing markets, she said.
But non-residential and infrastructure work is picked to offset any housing downturn and management had this week indicated a $802 million backlog, also expected to offset the slowing housing markets here and in Australia.
Credit Suisse increased its target from $10.25 to $10.70, due to the recent share price rise.
The company is not forecast to lose much from a fire at a Taupo fibreboard plant and disruption to its Pacific Steel operations at Otahuhu, Auckland.
Hudson is picking losses of less than $10 million, and has calculated his earnings forecast for next year accordingly.
After the fire in September, David Worley, chief executive of laminates and panels, said the company was covered for such losses.
"Fletcher Building carries standard business interruption and property insurances which carry a $10 million [excess].
"At this stage the company does not expect that it will have a material impact on its results for the 2007 financial year."
Chief executive Jonathan Ling said last month that losses at Otahuhu were also covered.
Macquarie is expecting Fletcher Building to make $386 million net profit after tax, slightly under the consensus of other analyst's forecasts of $388 million, which Fletcher chairman Rod Deane told shareholders on Tuesday that he was comfortable with.
Hudson said the latest guidance was based on the first four months of trading.
He said guidance given by Fletcher at last year's annual meeting was "relatively conservative" and earnings before interest and tax was well ahead of the $637 million projections at $675 million.
