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6 Reasons to Add Trex (TREX) Stock to Your Portfolio Now


Shares of Trex Company, Inc. TREX, the world’s largest manufacturer of high performance wood-alternative decking and railing, have been performing well of late. If you haven’t taken advantage of the share price appreciation yet, the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.

Earnings Surprise History

Trex has outpaced the Zacks Consensus Estimate in the trailing four quarters. The company has an average positive earnings surprise of 7.45%.

Estimates Moving Up

Estimates for fiscal 2017 and 2018 for Trex have moved up in the past 60 days, reflecting the optimistic outlook of analysts.

The estimate for fiscal 2017 has gone up 1% to $2.84, reflecting a year-over-year growth of 12.99%. The Zacks Consensus Estimate for earnings for fiscal 2018 has also moved up 2% to $3.18, a year-over-year growth of 12.13%.

Ahead of the Industry

In the last one year, Trex outperformed the Zacks classified Building Products – Wood sub-industry with respect to price performance. The stock soared 59%, while the subindustry recorded growth of 25%.

Stock is Undervalued

Trex has a trailing 12-month price earnings (P/E) ratio of 25.13, while the Zacks categorized Building Products – Wood sub-industry’s average trailing 12-month P/E ratio is higher at 33.54. Based on this ratio, the stock seems undervalued.

Strong Q1 & Guidance

Trex reported net income of $27.9 million, or 95 cents per share in the first quarter of 2017, a respective increase of 18% and 20% on a year-over-year basis. It marked the sixth consecutive quarter of double-digit net income and earnings growth. With the double-digit revenue growth, Trex outpaced the decking and railing sector by a significant margin. Operating leverage and continued focus on cost-reduction initiatives, including ongoing success with its procurement strategy, drove a 120 basis point expansion in gross margins.

For the second quarter, the company expects to achieve revenues of $160 million and incremental gross margin is now anticipated to be in excess of 50%.

Growth Drivers Intact

Growth rate for wood-alternative decking and railing will outpace the overall market. With the progress in all-weather materials and furnishings that enable the outdoors to act as an extension of the home, the demand for functional outdoor living spaces is set to rise. The outdoor living market is forecasted to exceed $7 billion this year. Trex, being the market leader in high-performance, wood-alternative decking, railing and accessories, is well placed to capitalize on this demand in the future. The company continues to invest in marketing programs and product development to support company growth.

Other Stocks to Consider

Trex currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the same sector are Boise Cascade Company BCC, Potlatch Corp. PCH and TopBuild Corp. BLD. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boise Cascade has an average positive earnings surprise of 114.74% in the trailing four quarters. Potlatch delivered an average positive earnings surprise of 42.59% in the past four quarters, while TopBuild has an average positive earnings surprise of 5.98% in the last four quarters.

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