Trex Company recently posted record sales levels that led to a sizable earnings surprise.
This Zacks #1 Rank (Strong Buy) is the top rated company in a great industry for this point in the business cycle.
Trex Company makes wood-alternative decking and railing materials as well as outdoor furniture. Wood-alternatives are better for the environment and offer less maintenance than wood. The company's products are in 5,500 retail locations throughout the world.
A Surprise Profit
On Feb 28 Trex announced fourth-quarter results that showed a 47% jump in sales, to company record of $75.3 million. Net income came in at $3.6 million, which was up from a $5.4 million loss a year ago. Comments from the CEO were enthusiastic, as he described the company's Transcend collection as a "game-changer" helping them build market share.
Earnings per shares for the period were $0.23, well ahead of the $0.52-loss that analysts were expecting. Trex has a spotty earnings history, but have topped forecasts in 4 of the past 5 quarters.
Analysts have unanimously raised full-year estimate for both 2011 and 2012. This year's Zacks Consensus Estimate jumped 52 cents, to $1.71 on the earnings news.
Next year's forecasts now average $1.93, up 54 cents. If Trex meets these expectations, the annual growth rates will be 138% and 13%, respectively.
Valuations & Comparisons
Thanks to those upward estimate revisions, shares of TREX are trading a good value. The forward P/E is about 18 times, which won't wow anyone, but the growth rates give it a PEG ratio of 0.9. A PEG under 1.0 signals discounted growth.
Building and construction materials companies are very late to recover in the business cycle, making this more a timely play. The industry is still ranked just 187 out of 265 on Zacks.com. However, Trex is the top rated of 20 companies in the miscellaneous segment of that industry.
Shares of TRES popped on the earnings news, but did not see any sharp profit taking there after. That speaks volumes given the choppy market. While the elevated price here can take some getting used to, don't wait too long, the price should keep rising with those earnings estimates.
Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service