Baird adjusted its outlook on Azek Co. (NYSE: AZEK), a manufacturer of building materials, on Tuesday by reducing the price target on the company's shares. The new target is set at $52.00, a decrease from the previous $54.00, while the Outperform rating remains unchanged.
This revision comes as a response to observed weaker near-term sell-through trends for the company's products.
The analyst from Baird noted a modest growth in fiscal quarter four sell-through, which was below the initially expected mid-single-digit growth. Furthermore, the projection for fiscal 2025 sell-through has been adjusted to a 4% increase from the previously anticipated 5%. These adjustments have led to a forecast for fiscal 2025 EBITDA that is approximately 2% lower than before and roughly 4% below the current consensus.
Despite the lower estimates, Baird's analyst believes that the financial targets set by Azek are not excessively challenging. The company's anticipated year-over-year EBITDA growth of about 7%, amounting to an additional $25 million, is thought to be achievable through various means. These include volume leverage, improvements in recycling and productivity, modest price and cost balance, and some incremental investments.
The report also acknowledges Azek's tendency to provide conservative initial guidance historically. While the weaker core results are a concern, the negative impact is somewhat mitigated by the company's recent actions to refinance and pay down debt, which should have a positive effect on earnings per share (EPS).
In other recent news, The AZEK Company Inc. has secured a significant $815 million credit facility orchestrated by Wells Fargo Securities and JPMorgan Chase (NYSE:JPM) Bank. This new agreement is expected to reduce AZEK's funded debt by approximately $150 million and enhance the company's financial flexibility.
Additionally, AZEK's third-quarter sales growth outperformed its guidance of 4-8%, with an actual increase of 18%. This strong performance led the company to raise its total sales and adjusted EBITDA guidance for fiscal year 2024 to $1.42-1.44 billion and $370-380 million, respectively.
Stifel maintains a Buy rating on AZEK with a $50 target, while JPMorgan, BMO Capital, and RBC Capital adjusted their price targets. Despite these adjustments, the firms maintain positive ratings based on AZEK's robust performance and strategic initiatives. The company has also entered into a $50 million accelerated share repurchase agreement with JPMorgan Chase Bank, demonstrating its commitment to sustainability and innovation in the outdoor living space.
InvestingPro Insights
To complement Baird's analysis of Azek Co. (NYSE: AZEK), recent data from InvestingPro offers additional context to the company's financial position and market performance. Despite the lowered price target, AZEK's stock has shown a strong 54.47% price return over the past year, indicating investor confidence in the company's long-term prospects.
InvestingPro data reveals that AZEK's revenue growth remains robust, with a 15.23% increase in the last twelve months as of Q3 2024, reaching $1.48 billion. This aligns with Baird's observation of modest growth, albeit at a slower pace than initially expected. The company's EBITDA has also seen significant growth, with an impressive 85.1% increase over the same period.
Two key InvestingPro Tips are particularly relevant in light of Baird's report:
1. AZEK is trading at a high earnings multiple, with a P/E ratio of 38.71. This suggests that investors are pricing in future growth expectations, despite the near-term challenges noted by Baird.
2. The company operates with a moderate level of debt, which supports Baird's positive view on AZEK's recent debt refinancing and pay-down efforts.
These insights, along with 8 additional tips available on InvestingPro, provide a more comprehensive picture of AZEK's financial health and market position. Investors looking for a deeper analysis may find value in exploring the full range of metrics and tips offered by InvestingPro.
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