Home Depot Passes on Trex (TREX) - William Blair

William Blair analyst Ryan Merkel weighed in on Trex (NYSE: TREX), saying, according to industry sources, they believe that Home Depot (NYSE: HE) has elected to stay with Fiberon’s Veranda as its stocked low-end decking line.

"We think the primary reason is Home Depot’s caution around Trex having enough immediate capacity to fill demand," he commented.

On the stock, they do not expect this news to be a major surprise.

"Trex is just now catching up on its backlog from 2019, and we believe demand remains robust entering 2020," he commented. "Basics at Home Depot was an optionality and not the only source of upside versus Street estimates, in our view. We still believe Basics is an opportunity at Home Depot in the future. For 2020, the major investor focus is supply, not demand. We believe Trex’s ability to smoothly ramp production will dictate sales. We still think Trex can generate 20% sales growth in 2020 and midteens growth in 2021. We are keeping our bull case 2021 EBITDA estimate at $305 million (Street $284 million). During the next few years faster conversion from wood (due to Enhanced) remains the primary growth driver, along with EBITDA margin expansion as factories ramp up, Enhance material is removed, and delayed productivity projects get implemented."

The firm reiterated an Outperform rating on TREX.

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 $97.43 yesterday.

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