Trex’s 4Q Sales Outperform On Strong Decking Demand

Trex Co. reported 4Q net sales of $228 million that exceeded analysts’ expectations of $216 million. The manufacturer of wood-alternative decking and railing saw a year-over-year improvement of 39% in its top-line, reflecting solid demand across all of its product lines.

Net sales of the company’s residential products jumped 40% to $214 million. Commercial products contributed $15 million to consolidated 4Q sales. Trex’s (TREX) 4Q earnings jumped 19% to $0.37 per share year-over-year and surpassed Street estimates by a penny.

The company’s gross margin contracted 270 basis points to 40.5% year-on-year mainly due to COVID-19 management costs and capacity ramp-up related costs at its Virginia facility. EBITDA margin declined 240 basis points to 27.9%. (See Trex stock analysis on TipRanks)

For 1Q, Trex forecasts revenues to generate between $235 million and $245 million. Analysts are expecting $236.7 million for the quarter.

Following the earnings release, Berenberg Bank analyst Alex Maroccia reiterated a Buy rating and price target of $86 (14% downside potential) on the stock.

In a note to investors, Maroccia wrote, “As consumer demand continues to grow, we believe Trex will retain the ability to capture strong sales across its product channels, as it will recognize additional increases to its production capability throughout FY2021.”

Overall, the Street is cautiously optimistic on the stock, with a Moderate Buy consensus rating based on 2 Buys and 2 Holds. The average analyst price target of $88.50 implies downside potential of about 11.7% from current levels. Shares have gained by about 88.5% over the past year.

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