On Tuesday, JPMorgan revised its price target for Azek Co. (NYSE: AZEK), a company specializing in the manufacturing of composite decking and rail products. The new price target is set at $48.00, down from the previous target of $52.00. Despite the reduction, the firm continues to hold an Overweight rating on the stock.
Azek reported a third-quarter sales growth of 18% (excluding Vycom), exceeding the provided guidance of 4-8%. This included a $35 million impact from advanced channel purchases, which were initially expected in the fourth quarter.
Consequently, the company has slightly increased its total sales guidance for fiscal year 2024 to a range of $1.42-1.44 billion, up from $1.41-1.44 billion. Residential sales projections were also adjusted up to $1.35-1.37 billion from $1.34-1.36 billion.
Despite the anticipation of a downturn in the broader residential repair and remodel market for 2024, Azek expects its second-half sell-through to increase by mid-single digits, continuing from a double-digit rise in the first half of the year.
The company foresees different growth rates for its product categories in the second half: Deck, Rail & Accessories (DRA) is projected to grow by high single digits, nearing double digits, while Exteriors may remain flat or decline by low single digits.
Azek has also raised its adjusted EBITDA guidance slightly for fiscal year 2024, now expecting $370-380 million, a 1% increase at the midpoint, compared to the previous forecast of $364-380 million. This adjustment reflects anticipated margins between 26.0-26.4%.
Furthermore, the company has repurchased approximately 1.2 million shares for $50 million in the third quarter as part of an Accelerated Share Repurchase program, with year-to-date spending totaling $175 million.
In light of the third-quarter results and the modestly raised full-year guidance, JPMorgan maintains its fiscal year 2024 Operating EPS estimate at $1.18 and has slightly reduced its adjusted EBITDA forecast to $378 million from $383 million.
Additionally, the firm has marginally lowered its fiscal year 2025 Operating EPS and adjusted EBITDA estimates to $1.35 and $426 million, respectively.
Azek's leadership position within the composite decking and rail industry is highlighted as a key strength, with expectations for continued market share gains from wood alternatives.
JPMorgan also notes that Azek's current valuation, trading at an approximate 15% discount to competitor Trex based on fiscal year 2025 EBITDA estimates, does not fully reflect the company's potential for growth and margin improvement in the next one to two years, as well as in the long term.
In other recent news, building materials manufacturer Azek Co. has been the subject of recent adjustments by BMO Capital and RBC Capital, both firms reducing their price targets to $46.00. Despite the reduction, RBC Capital maintains an Outperform rating, while BMO Capital holds a Market Perform stance.
The adjustments follow Azek's third fiscal quarter of 2024 earnings, which surpassed expectations, leading to an increase in full-year guidance. However, concerns about future demand in the repair and remodeling sector have caused a sense of market uncertainty.
Azek's strong performance was also confirmed in the recent earnings call where the company reported a 12% year-on-year increase in net sales, reaching $434 million. The company's adjusted EBITDA margin reached a record high of 27.5%, reflecting successful productivity and cost management initiatives. In response to solid cash generation, Azek's board approved a $600 million expansion of the share repurchase program.
These are recent developments for Azek, which despite some market uncertainties, continues to show robust business fundamentals. Analyst firms BMO Capital, Loop Capital, and Baird have adjusted their financial outlooks for Azek, reflecting a mix of successes and challenges. The company's strategic focus on converting traditional materials to composite solutions continues to drive its growth.
InvestingPro Insights
Following JPMorgan's revised price target for Azek Co., current metrics from InvestingPro provide a deeper financial perspective on the company's performance and market position. Azek's market capitalization stands at approximately $5.54 billion, reflecting its significant presence in the composite decking and rail industry. The company's P/E ratio, based on the last twelve months as of Q3 2024, is 34.47, which is relatively high, indicating that investors may expect higher growth from the company compared to the market average. However, Azek's aggressive share buyback program, as highlighted in one of the InvestingPro Tips, demonstrates management's confidence in the company's value, having repurchased 1.2 million shares for $50 million in Q3 as part of its buyback strategy.
Revenue growth remains a strong point for Azek, with a 15.23% increase over the last twelve months as of Q3 2024. This aligns with the company's reported third-quarter sales growth and upwardly revised sales guidance for fiscal year 2024. Additionally, the InvestingPro Tip that net income is expected to grow this year supports the positive outlook maintained by JPMorgan, despite the broader market concerns.
It's worth noting that Azek does not pay a dividend to shareholders, which could be a consideration for investors seeking regular income. However, the company's focus on growth and share repurchases may appeal to those looking for capital appreciation. For more detailed analysis and additional InvestingPro Tips, investors can visit the InvestingPro platform, which includes a total of 11 tips for Azek Co.
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