AZEK - Azek Trex upgraded at BofA on leaner inventories of deck materials

2023-04-19 11:40:36 ET

Azek ( NYSE: AZEK ) on Wednesday was upgraded to Buy from a prior investment rating of Neutral by analysts at Bank of America. They also upgraded Trex ( NYSE: TREX ) to Neutral from a previous rating of Underperform.

“We believe the composite decking industry is poised to recover in 2H23,” Rafe Jadrosich, analyst at BofA, said in an April 19 report. “Manufacturers/distributors underwent a significant destocking period through 2H22 and we now believe that the wholesale channel is entering the peak selling season in 2023 with inventory levels below historical levels.”

BofA raised its price target for Azek ( AZEK ) to $31 a share from the prior $28 a share, based on a higher EBITDA multiple of 14 times estimates for 2024, up from a previous multiple of 12.5 times.

The bank also lifted its price target for Trex ( TREX ) to $54 a share from $47 a share, based on a higher EBITDA multiple of 18 times estimates for 2024, up from 16 times previously.

BofA prefers shares of Azek ( AZEK ) to those Trex ( TREX ) because of relative valuation and a greater potential for expanded margins because of recent cost trends.

“We were previously concerned pricing competition could intensify after companies planned to roughly double capacity compared to the 2019 level by the end of 2023,” according to BofA. “Despite the destocking period and under-utilization of manufacturing, the industry has maintained pricing discipline. In addition, manufacturers have reduced on capacity plans.”

Seeking Alpha contributor Hindsight Investor has a Buy rating on Trex ( TREX ) based on a growth at a reasonable price model . Contributor MR Investing rates Azek ( AZEK ) as a Sell because of its risk-reward profile.

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