Stephens cuts Trex stock price target to $65 from $73

On Monday, Stephens analyst Trey Grooms adjusted the price target for Trex Company, Inc. (NYSE:TREX), a leading manufacturer of wood-alternative decking and railing products, to $65.00, down from the previous target of $73.00, while maintaining an Equal Weight rating on the stock. According to InvestingPro data, analyst targets for TREX range from $54 to $85, with 13 analysts recently revising their earnings expectations downward. The stock currently trades at $57.76, showing significant volatility with a beta of 1.63.

The revision followed Trex’s first-quarter sales performance, which surpassed both guidance and estimates, primarily due to a surge in March sales, especially in premium products. Despite the positive sales figures, gross margins fell short of expectations. This was attributed to lower production volumes and temporary cost increases related to product enhancements and a transition in railing manufacturing. These costs are anticipated to persist into the second quarter but are expected to reverse in the second half of the year. InvestingPro data shows the company maintains a gross profit margin of 40.6% and generates annual revenue of $1.12 billion, though revenue growth has declined by 9.1% over the last twelve months.

Trex confirmed its full-year guidance but provided a second-quarter sales outlook that aligns closely with estimates. However, the gross margin forecast for the second quarter remains subdued due to the continuation of the first-quarter cost challenges. The guidance suggests typical reductions in underlying channel inventory during the second half of the year, which should help margins benefit from the reversal of manufacturing costs incurred in the first half, increased volumes, and a usual seasonal inventory build-up.

Grooms noted the positive outlook for margin improvement and free cash flow (FCF) generation into the next year. Nevertheless, he cited the "heightened level of uncertainty around consumer confidence and resulting demand" as a reason for maintaining a cautious stance. The analyst’s reiterated Equal Weight rating reflects this position of watchfulness.

In conclusion, while the second half of the year may bring improvements in manufacturing costs and margins for Trex, current economic uncertainties have led Stephens to lower the price target and remain neutral on the stock’s potential. Trading at a P/E ratio of 31.61, InvestingPro analysis indicates the stock is currently overvalued, with multiple ProTips highlighting high valuation multiples across various metrics. For deeper insights into Trex’s valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, Trex Company Inc. reported its Q1 2025 earnings, revealing an earnings per share (EPS) of $0.60, which aligned with analysts’ expectations. The company’s revenue reached $340 million, exceeding forecasts by approximately $10.88 million, despite a 9% decline year-over-year. This performance highlights Trex’s ability to surpass revenue expectations, signaling strong financial health. Trex anticipates a 5-7% growth in net sales for the full year 2025, with an adjusted EBITDA margin expected to exceed 31%. The company credits new product launches and operational improvements as key growth drivers, although it faces challenges from competitors such as AZEK. Analysts from firms like William Blair and Bank of America noted the company’s strategic initiatives, such as inventory strategies and product refinements, which are expected to stabilize margins in the latter half of the year. Additionally, Trex’s ongoing digital transformation and strategic partnerships with distributors are seen as beneficial for capturing consumer demand in the home center channel.

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