TREX - Trex jumps to 9-month high on BofA upgrade to Buy after Q1 results
2023-05-09 10:51:59 ET
Trex’s ( NYSE: TREX ) stock on Tuesday jumped to a nine-month high after analysts at Bank of America upgraded the maker of deck materials to Buy from a previous investment rating of Neutral. They said Trex ( TREX ) is poised for a recovery after the company’s Q1 sales and profit beat estimates.
“Our upgrade reflects Trex’s: resilient sell-through trends, rapid gross margin rebound and long-term material conversion opportunity,” Rafe Jadrosich, analyst at BofA, said in a May 9 report. “Composite decking continues to take share from wood despite the decline in lumber prices. Longer term, Trex ( TREX ) should benefit from the conversion to composite decking.”
Trex ( TREX ) rose as much as 11% to $62.66 a share on Tuesday.
BofA raised its price target for Trex ( TREX ) to $66 a share from $54 a share, based on an enterprise value-to-EBITDA multiple of 20 times, up from 18 times previously, estimated EBITDA for 2024.
“Our price objective multiple is a slight premium to Trex’s ( TREX ) historical valuation and relative valuation versus building products peers, which we think is justified by the better revenue trends of decking versus other categories,” according to BofA.
Source: Trex
Trex’s ( TREX ) Q1 sales fell 30% from a year earlier to $238.7 million in Q1, beating the average estimate among Wall Street analysts of $237.7 million. Net income declined 42% from the prior year to $41.1 million, or $0.38 a share, from $71.2 million, or $0.62 a share. The consensus estimate was $0.33 a share.
BofA estimated that Trex ( TREX ) is capable of beating its full-year guidance for an EBITDA margin of 26%-27%.
“We believe even if sell-through moderates to a mid-single-digit decline, Trex’s ( TREX ) 2023 EBITDA would be 5%-10% ahead of its implied guidance,” according to BofA. “Every $100 million in incremental revenue above Trex’s ( TREX ) current production level of $1 billion will carry gross margin 100 to 150 basis points higher than the current full-year guidance.”
| Bank of America estimates for Trex Corp. ( TREX ) |
| EPS |
| New |
| Old |
| 2023 |
| $1.70 |
| $1.54 |
| 2024 |
| $1.97 |
| $1.80 |
| 2025 |
| $2.24 |
| $2.07 |
Seeking Alpha contributor Hindsight Investor has a Buy rating on Trex ( TREX ) for offering growth at a reasonable price . Columnist WideAlpha rates Trex ( TREX ) as a Strong Buy on its valuation .
More about Trex
- Azek, Trex upgraded at BofA on leaner inventories of deck materials
- Makers of construction materials decline amid concerns about interest rates
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Trex jumps to 9-month high on BofA upgrade to Buy after Q1 results