Stock Analysis

What Does The Future Hold For Trex Company, Inc. (NYSE:TREX)? These Analysts Have Been Cutting Their Estimates

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NYSE:TREX
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Today is shaping up negative for Trex Company, Inc. (NYSE:TREX) shareholders, with the analysts delivering a substantial negative revision to this year's forecasts. This report focused on revenue estimates, and it looks as though the consensus view of the business has become substantially more conservative.

After the downgrade, the consensus from Trex Company's 16 analysts is for revenues of US$1.1b in 2022, which would reflect a chunky 19% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to crater 24% to US$1.77 in the same period. Previously, the analysts had been modelling revenues of US$1.4b and earnings per share (EPS) of US$2.47 in 2022. It looks like analyst sentiment has declined substantially, with a sizeable cut to revenue estimates and a large cut to earnings per share numbers as well.

View our latest analysis for Trex Company

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NYSE:TREX Earnings and Revenue Growth August 10th 2022

It'll come as no surprise then, to learn that the analysts have cut their price target 14% to US$63.53. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Trex Company, with the most bullish analyst valuing it at US$102 and the most bearish at US$54.00 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 35% annualised revenue decline to the end of 2022. That is a notable change from historical growth of 18% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 4.1% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Trex Company is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Trex Company's revenues are expected to grow slower than the wider market. The consensus price target fell measurably, with analysts seemingly not reassured by recent business developments, leading to a lower estimate of Trex Company's future valuation. Given the stark change in sentiment, we'd understand if investors became more cautious on Trex Company after today.

Unfortunately, by using these new estimates as a starting point, we've run a discounted cash flow calculation (DCF) on Trex Company that suggests the company could be somewhat overvalued. You can learn more about our valuation methodology for free on our platform here.

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Find out whether Trex Company is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NYSE:TREX

Trex Company

Trex Company, Inc. manufactures and distributes decking, railing, and outdoor living products and accessories for residential and commercial markets in the United States.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation0
Future Growth1
Past Performance3
Financial Health5
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Excellent balance sheet with acceptable track record.