FBR Capital Remains Bullish on Trex (TREX) Following a 1Q Earnings Beat

FBR Capital reiterated an Outperform rating and $50.00 price target on Trex (NYSE: TREX) following the company's 1Q earnings report. TREX reported net sales of $131.7M, beating FBR's estimate of $130.5M. Adjusted EPS was reported at $0.78, ahead of consensus' estimate of $0.65, on a slightly lower share count.

Analyst Alex Rygiel commented, "On May 10, TREX announced 1Q16 results that were better than our and consensus' estimates. Record 1Q sales were modestly ahead of guidance while lower material costs and improved manufacturing efficiencies resulted in gross margins of 43.8%, a 390-bp YOY improvement. The quarter was also aided by lower-than-expected SG&A expenses from the deferral of some advertising expenses into 2Q. EPS were $0.78, versus our and consensus' estimate of $0.65. Given the strong quarter, incremental gross margins for 2016 are expected to be around 60% (versus prior guidance of 50%). TREX continues to gain share, with growth outpacing that of the overall decking market, which we expect to continue. Trex University is up and running, with good traffic of contractors and dealers growing their knowledge of the Trex products. The pellets business remains soft due to low oil prices, and the blended pellets business is off to a slightly slower start. We are adjusting our estimates to account for 1Q results, lower sales growth, higher interest expense (for increased borrowings to repurchase shares), a lower tax rate, and lower share count relative to our prior estimates. We reiterate our price target of $50 and our Outperform rating."

For an analyst ratings summary and ratings history on Trex click here. For more ratings news on Trex click here.

Shares of Trex closed at $41.54 yesterday.

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