Trex Shares Initiated With Neutral Rating, $52 Price Target At Wedbush

In a report published Wednesday, Wedbush analysts initiated coverage of

with a Neutral rating and a price target of $52. The analysts believe the company has "several more years of growth" and would be able to sustain its incremental gross margins at around 45-49 percent, supported by a recovery in the repair and replacement markets and the company's market share gains due to the continued transition to wood-alternative outdoor living products. Trex appears positioned to generate 12-15 percent revenue growth over the next several years, backed by "product development, share gain and demand pick-up in the renovation market," the analysts said. "Entry into pellet manufacturing from recycled plastics is eco-friendly but mid-to-long-term contribution is not expected to be significant…Cash flow allocation remains centered on the specialty materials, new product initiatives and aggressive sales program. While capex approximates 3-4% of revenue, Trex's industry-leading brand name comes with a $20 million multifaceted branding strategy," the report added. While the analysts are "positive on the entry into the new specialty materials market opportunity," the Neutral rating reflects the absence of visibility into a "reasonable opportunity for the company to exceed expectations" and Trex's shares trading at nearly a 40 percent premium to its peers.