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Bull of the Day: Trex (TREX)

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Trex Company (TREX - Free Report) is seeing resilient consumer demand in 2023. This Zacks Rank #1 (Strong Buy) has beat on earnings 3 quarters in a row.

Trex is a manufacturer of high-performance, low maintenance and eco-friendly wood-alternative decking and railing. Its products are stocked in more than 6,700 retail locations worldwide, including at Home Depot and Lowe's.

A Big Earnings Beat in the Second Quarter

On July 31, 2023, Trex reported its second quarter results and easily blew by the Zacks Consensus, reporting earnings of $0.71 versus the Zacks Consensus of $0.54. That's a 31.5% beat.

It was the third consecutive earnings beat in a row. Trex has only missed twice in the last 5 years.

Revenue was $357 million, which was down 5% from last year's revenue of $386 million as the channel was building inventory. It saw margin expansion, however, with gross margin of 43.9% compared to 40.7% a year ago.

Trex saw mid-single digit growth in the channel sell through as consumer demand remained resilient.

The company also launched Trex Select T-Rail system, a value priced composite railing that rounds out its portfolio at the entry level. It is designed to compete with PVC vinyl railing.

Announced Full Year Guidance

Trex has improving visibility so it was finally able to provide full year 2023 revenue guidance. It expects revenues to range from $1.04 billion to $1.06 billion. This is below last year's revenue of $1.11 billion. It's still rebounding from last year's inventory build.

The analysts are more bullish, however, as the Zacks Consensus is calling for $1.08 billion, above the company's guidance range.

The analysts are also bullish on earnings as well. 9 estimates were revised higher in the last 2 months which pushed the Zacks Consensus up to $1.76 from $1.61. This is still 2.2% below last year's earnings of $1.80, however.

But looking forward, the analysts are even more bullish on 2024 as the Zacks Consensus has jumped to $2.11, which is earnings growth of 19.7%.

Trex Was a Big Pandemic Winner

As we stayed home during the pandemic, what did we do? We put on new decks. Trex was a huge pandemic winner as its shares soared.

But in 2022, the stock sold off along with the other growth stocks, only to rally again in 2023. Shares of Trex are up 59% year-to-date as the consumer has kept spending and the US has avoided a recession. But on a 2-year stack, it's still down 40%.

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Image Source: Zacks Investment Research

Timing matters.

Trex saw an opportunity while its shares were lower. In the second quarter, Trex repurchased 264,896 shares for $16 million.

On a P/E basis, Trex is not a "cheap" stock. It trades with a forward P/E of 39.1.

But for those investors who believe that the consumer will continue to spend on their home, Trex is one to keep on your short list.

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