AZEK - Azek downgraded to Neutral at UBS on lower earnings outlook

Azek ( NYSE: AZEK ) on Thursday was downgraded to Neutral from an investment rating of Buy by analysts at UBS. They said the maker of deck building materials faces slowing demand that will hinder wholesaler efforts to reduce their inventories.

Azek ( AZEK ) fell 3.4% to $21.72 a share by 1:42 p.m. ET.

“The inventory destock across the decking industry has been very topical over the past few months as distributor channel partners reduced buying to manage supply,” John Lovallo, analyst at UBS, said in a January 5 report. “If distributors choose to hold lower than historical levels of inventory, due to macro uncertainty, Azek ( AZEK ) could experience further sales weakness in this channel.”

The bank cut its estimate of Azek’s ( AZEK ) 2023 EPS from $0.23 to $0.13. It also lowered its sales forecast from $1.26 billion to $1.23 billion, and adjusted EBITDA estimate from $260 million to $239 million for the fiscal year ended in September 2023.

Amid the near-term uncertainty, UBS sees the long-term potential for growth as households build new decks or replace aging ones. There are about 56 million decks in the United States, and half of them are beyond their useful life, according to Principia Consulting data cited by UBS. Azek’s brands include TimberTech, Azek Exteriors, Versatex and Ultralox.

“We continue to believe that Covid changed the way consumers think about the home, but current economic headwinds could impact willingness to invest in bigger ticket [remove and replace] projects,” UBS said.

Azek ( AZEK ) in the past 12 months has lost 50% of its value, compared with a 13% decline for the Standard & Poor's 400 midcap index ( SP400 ).

Seeking Alpha contributor Donovan Jones rates Azek ( AZEK ) as a Hold on economic uncertainties for housing . Contributor Creative Capital Ideas has a Buy rating on Azek ( AZEK ) because of the company's growth potential .

For further details see: