Tuesday, JPMorgan updated its assessment of NYSE:TREX, raising the price target to $95.00 from the previous $93.00 while maintaining a Neutral rating on the stock. The upgrade comes after Trex, a leading company in the composite decking and rail industry, reported first-quarter sales of $374 million, surpassing its guidance range of $360-370 million.
The firm continues to project 2024 revenues between $1.215 and $1.235 billion, reflecting an 11-13% year-over-year increase, slightly below JPMorgan's earlier estimate of $1.24 billion.
The company's expectations are based on anticipated mid-single-digit sell-through growth, set against a broader repair and remodel market forecasted to be flat or potentially decline by a low single-digit percentage.
Trex also anticipates an adjusted EBITDA margin for 2024 in the range of 30.0-30.5%, marking an improvement of 50-100 basis points from the previous year. This outlook is set despite first-quarter gross margins of 45.4%, which exceeded estimates but are expected to moderate as the year progresses due to declining capacity utilization rates.
In terms of quarterly performance, Trex's first-quarter sales demonstrated a significant 57% year-over-year increase, outpacing JPMorgan's expectations of 54% and the company's own forecast of 51-55%. Adjusted EBITDA margins for the quarter stood at a robust 35.6%, well above the 32.6% estimated and showing a 680 basis point improvement from the prior year.
Based on these results, JPMorgan has slightly increased its operating EPS estimates for 2024 and 2025 to $2.26 and $2.65, respectively, from the previous forecasts of $2.22 and $2.59. The firm's EBITDA projections for the same years have also been adjusted upward to $386 million and $449 million from $379 million and $439 million.
JPMorgan's stance on Trex remains Neutral in comparison to its industry peers. The company is recognized for its strong leadership position and superior margins within its sector, which is expected to continue taking market share from traditional wood options. However, the valuation of Trex's stock, trading at approximately 25 times JPMorgan's estimated 2024 EBITDA and representing a roughly 30% premium to its close peer AZEK, is considered by JPMorgan to be rather full on a relative basis.
InvestingPro Insights
As Trex Company Inc (NYSE:TREX) continues to outperform market expectations, insights from InvestingPro become particularly relevant for investors seeking to gauge the company's financial health and future prospects. With a market capitalization of $9.52 billion, Trex is trading at a forward P/E ratio of 37.56, which indicates a premium valuation relative to its earnings. InvestingPro Tips highlight that Trex has a perfect Piotroski Score of 9, suggesting strong financial positioning, and 12 analysts have revised their earnings upwards for the upcoming period, reflecting an optimistic outlook on the company's performance.
The company's revenue growth of 22.3% over the last twelve months, as of Q1 2024, coupled with a robust gross profit margin of 42.9%, underscores its efficient operations and ability to generate profit. Additionally, Trex has demonstrated a high return on assets of 20.88%, which is a testament to its effective use of resources. Despite recent volatility in stock price movements, the company's six-month price total return shows a substantial uptick of 32.63%, indicating strong market confidence.
For investors interested in deeper analysis and additional insights, InvestingPro offers more tips on Trex's financial metrics and future performance predictions. Utilize the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription and explore the full range of InvestingPro Tips available for Trex at https://www.investing.com/pro/TREX, which includes a comprehensive set of 16 additional tips to inform your investment decisions.
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