On Friday, RBC Capital Markets adjusted its outlook on shares of Azek Co. (NYSE: AZEK), a leading manufacturer of building products, increasing the firm's price target on the company's shares to $58 from $50. The firm also reaffirmed its Outperform rating on the stock. This adjustment reflects a positive view of the company's financial prospects for the fiscal year 2025.
According to InvestingPro data, AZEK has demonstrated strong momentum with a 41% year-to-date return, and six analysts have recently revised their earnings estimates upward for the upcoming period.
The upgrade is based on management's satisfaction with the company's performance in the calendar year 2024, noting resilience in sell-through rates, a reacceleration in business, and a healthy pipeline indicated by current leads, backlog, and sample orders.
Azek's management has set initial expectations for mid-single-digit (MSD) sell-through growth in a relatively flat repair and remodel (R&R) market. This outlook is considered balanced against the backdrop of various macroeconomic factors.
Azek's continued market outperformance is attributed to gains in market share and the launch of new products, which are each expected to contribute an additional 2-3% to growth. The guidance provided assumes relatively neutral pricing dynamics, with low-single-digit percentage increases in decking pricing being balanced out by promotional activities in the exteriors segment.
RBC Capital's analysis suggests that there is potential for additional outgrowth given the opportunities for market share gains and contributions from new products, which include offerings such as rails, PVC siding, and painted trim.
While management maintains a conservative stance in their guidance, preferring to wait for early buying patterns and key selling season trends before making bold predictions, they also acknowledge the possibility that the R&R market could perform better than expected.
In other recent news, Azek Co. reported robust fiscal fourth-quarter earnings, surprising analysts. BMO Capital Markets and Loop Capital maintained a Market Perform and Hold rating on the stock respectively, with BMO Capital raising the price target to $51 and Loop Capital to $49. Baird, and DA Davidson also revised their targets upward to $54, and $50 respectively, following Azek's optimistic fiscal 2025 guidance.
The company anticipates a 5-7% revenue growth in FY25 and expects an adjusted EBITDA margin between 26.5-27%. Azek Co. also secured a significant $815 million credit facility from Wells Fargo (NYSE:WFC) Securities and JPMorgan Chase (NYSE:JPM) Bank, expected to reduce the company's funded debt by approximately $150 million. This move is expected to enhance Azek's financial flexibility.
In addition, the company entered into a $50 million accelerated share repurchase agreement with JPMorgan Chase Bank. Analysts from Stifel, JPMorgan, BMO Capital, and RBC Capital continue to maintain positive ratings on Azek based on the company's strong performance and strategic initiatives. These are recent developments for Azek Co.
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