On Tuesday, Loop Capital maintained a Hold rating on shares of Trex Company Inc. (NYSE:TREX) with a steady price target of $72.00. The firm acknowledged Trex's third-quarter earnings, which surpassed expectations due to less significant revenue drops than anticipated. This performance was attributed to a lower-than-expected decrease in sell-through demand and robust growth in the company's premium product categories.
Trex experienced a low single-digit (LSD) decline in sell-through demand over the quarter, while its high-end product lines saw high single-digit (HSD) sell-through growth, an improvement from the low double-digit (LDD) growth reported in the second quarter of 2024.
Despite the fourth quarter sell-through demand projections being more optimistic than previously estimated, Trex has opted to maintain its full-year 2024 revenue guidance at $1.14 billion at the midpoint. This decision is part of the company's strategy to reduce channel inventory levels below those of the previous year.
The company is preparing for a challenging first half of 2025, comparing against this year's strong early buy and healthy sell-through demand. Trex does not anticipate the $40 million from last year's early buy to recur as it aims to adjust its channel stocking strategy to avoid cyclical extremes.
For fiscal year 2025, Trex forecasts an EBITDA margin of 31% or more, which includes one-time costs of $10 million associated with the transition of its railing products and the new manufacturing facility in Little Rock, Arkansas.
Despite uncertainties about the fiscal year 2025 margin outlook, such as volume assumptions, Loop Capital expressed optimism that Trex could still achieve modest margin growth next year, even with the increased capital expenditures for its new plant.
Nevertheless, the Hold rating and price target remain unchanged until there is clearer visibility into the sell-through demand for fiscal year 2025, especially considering the tough comparisons in the first half of the year.
In other recent news, Trex Company's third-quarter results surpassed both earnings and revenue expectations. The company reported earnings per share of $0.37 and revenue of $234 million, exceeding analysts' estimates. Despite a 23% year-over-year sales decline, these figures surpassed Trex's expectations, primarily due to robust consumer demand for its premium-priced products.
Moreover, Trex reiterated its full-year 2024 revenue guidance of $1.14 billion, reflecting confidence in its financial performance. The company also repurchased $100 million worth of shares in the third and early fourth quarters, signaling a positive long-term outlook.
In response to these developments, Baird, B. Riley, and DA Davidson adjusted their price targets for Trex, while maintaining their respective ratings. Baird raised its price target to $78, B. Riley held a $97 target, and DA Davidson increased its target to $74.
Trex is also preparing for the gradual opening of its new Arkansas facility, which will start with recycling operations in 2025 and deck board production in 2027. These recent developments are expected to contribute to the company's growth and are certainly of interest to investors.
InvestingPro Insights
To complement Loop Capital's analysis, InvestingPro data offers additional insights into Trex Company Inc.'s financial position. The company's market capitalization stands at $7.23 billion, reflecting its significant presence in the composite decking market. Trex's P/E ratio of 27.37 suggests that investors are willing to pay a premium for its earnings, which aligns with the company's strong market position and growth prospects.
An InvestingPro Tip highlights that Trex is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.31 for the last twelve months as of Q2 2024. This indicates that the stock may be undervalued considering its growth potential, which could be attractive for value-oriented investors.
Another relevant InvestingPro Tip notes that Trex operates with a moderate level of debt, which supports the company's financial flexibility as it invests in new facilities and product transitions. This moderate debt level could be particularly important as Trex navigates the anticipated challenges in the first half of 2025.
For investors seeking more comprehensive analysis, InvestingPro offers 12 additional tips for Trex Company Inc., providing a deeper understanding of the company's financial health and market position.
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