On Monday, Citi analyst Anthony Pettinari adjusted the investment outlook for shares of Azek Co. (NYSE: AZEK), shifting the stock rating from Neutral to Buy and increasing the price target to $60 from the previous $51.
The upgrade aligns with broader analyst sentiment, as InvestingPro data shows five analysts have recently revised their earnings estimates upward, with price targets ranging from $47 to $65. Pettinari's revision is part of the 2025 Outlook, which includes updates to estimates and top picks across the sector.
In his report, Pettinari noted that the 2025 earnings per share (EPS) estimates have been decreased by an average of 3% and now sit below consensus for most producers. This revision follows a year where housing starts, repair and remodel (R&R) spending, and volumes in Aggregates/Cement experienced declines.
However, a slight recovery is anticipated for 2025. The forecast includes a 1% year-over-year increase in housing starts to 1.36 million units, with a modest growth in single-family homes expected to be partially offset by a downturn in multi-family projects.
Pettinari also anticipates that new home prices might decrease by 1% in 2025 as mortgage rates continue to stay high, with projections of mid-6% by year-end. Despite these challenges, the Construction Materials sub-sector, with companies like CRH (NYSE:CRH) as a top pick, is favored due to the expected benefits from the Infrastructure Investment and Jobs Act (IIJA) and strong backlogs.
The analyst's outlook for Building Products is selective, recommending a Buy rating for companies like Owens Corning (NYSE:OC) and Azek. For 2025, R&R spending is modeled to grow by 4% year-over-year, following a slight drop in the previous year. On the other hand, caution is advised regarding Homebuilders due to their high sensitivity to the prevailing elevated interest rates. This sector faces the most significant headwinds from the current financial environment.
In other recent news, Azek Co. reported impressive fiscal fourth-quarter earnings that exceeded estimates, and projected a 5-7% revenue growth in FY25 with an anticipated adjusted EBITDA margin between 26.5-27%.
The company has also revised its executive severance plan, aligning it with industry standards, a move that was well-received by the executive team, including CEO Jesse Singh. Azek Co. recently secured a substantial $815 million credit facility from Wells Fargo (NYSE:WFC) Securities and JPMorgan Chase (NYSE:JPM) Bank, which is expected to reduce the company's funded debt by approximately $150 million.
Moreover, Azek entered into a $50 million accelerated share repurchase agreement with JPMorgan Chase Bank. Analysts from RBC Capital Markets, BMO Capital Markets, Loop Capital, and Baird have revised their price targets upward, reflecting positive sentiment towards Azek's financial prospects. Stifel, JPMorgan, BMO Capital, and RBC Capital continue to maintain positive ratings on Azek. These are recent developments for Azek Co.
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