Why Was Trex Downgraded After An Earnings Beat? These Analysts Explain
Despite strong fourth quarter sales and earnings, Trex Company, Inc. (NYSE: TREX) was downgraded at Stifel on Wednesday morning, from a Buy to a Hold.
Trading above $48, the valuation “looks stretched,” analysts wrote.
Despite the downgrade, the firm boosted its EPS and revenue estimates for fiscal 2015 and fiscal 2016. Stifel now expects EPS of $1.82 (up from $1.61) for 2015, and $2.34 (up from $2.00) for 2016. Revenues are projected at $464.3 million (up from $455.9 million) for 2015, and $539.3 million (up from $525 million) for 2016.
The firm is modeling EBITDA of $105 million, which puts shares at a 14.5x EBTIDA estimate.
While analysts “see the potential for EBITDA to expand to as much as $110-115 million,” they noted that Trex is still trading above most peers on a one year forward EBITDA basis.
"[We] believe that Trex is deserving of some premium," Stifel explained, "but in order to justify a Buy rating at these levels, we would not be comfortable with the necessary multiple on our estimate to get to 10-20% upside.”
Stifel is also concerned about the longer-term portrait of the commercial polyethylene space. "The main thesis behind that business is offering commercial polyethylene users a cost advantage by combining virgin material with Trex’s recycled material.
"With oil prices driving virgin polyethylene costs down, the cost advantage narrows somewhat," they concluded.
Latest Ratings for TREX
|Nov 2016||FBR Capital||Downgrades||Outperform||Market Perform|
|Nov 2016||Seaport Global||Initiates Coverage On||Neutral|
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