Bull of the Day: The AZEK Co. (AZEK)
The AZEK Company Inc. AZEK is seeing a rise in sales as demand returns to residential building. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the double digits in both Fiscal 2024 and Fiscal 2025.
The AZEK Company makes low maintenance and environmentally sustainable outdoor living products including TimberTech decking and railing, Versatex and AZEK Trim, and StruXure pergolas. The products are made from up to 85% recycled material and primarily replace wood on the outside of homes.
Another Earnings Beat in the Fiscal First Quarter
On Feb 6, 2024, AZEK reported its fiscal first quarter 2024 results and blew by the Zacks Consensus Estimate by $0.05. Earnings were $0.10 versus the Zacks Consensus of $0.05.
It was the 5th consecutive earnings beat. AZEK has only missed one time since its 2020 IPO.
Net sales rose 11% to $240.4 million from $216.3 million last year. The increase was primarily due to an increase in volume in the Residential segment, which saw net sales jump 24% year-over-year driven by strong underlying sell-through growth in the Deck, Rail & Accessories category as well as the Exteriors category.
These sales were partially offset by the sale of AZEK's Vycom business which is in the Commercial segment. The Commercial segment fell by 53% to $19.3 million as a result. Vycom was divested on Nov 1, 2023 with net sales in the quarter of just $3.3 million compared to $21.7 million for the three months ended Dec 31, 2022.
AZEK saw a net profit margin of 10.7%.
AZEK Raised Fiscal 2024 Guidance
AZEK is seeing stronger demand in the Residential channel than it thought a few months ago.
“We continue to see positive Residential sell-through growth and positive demand indicators from our customer surveys and digital metrics," said Jesse Singh, CEO.
"Customer sentiment is higher than this time last year, and customers appear to be more optimistic for a normal building season in 2024. Channel inventories continue to be conservatively positioned through our fiscal first quarter, and we are proactively managing our production and finished goods inventory levels to maintain high levels of service,” he added.
The company is "cautiously optimistic" ahead of the traditional spring building season.
It raised its fiscal 2024 sales guidance to a range of $1.385 to $1.425 billion, up from the prior guidance range of $1.335 to $1.395 billion.
Analysts like what they heard. 6 earnings estimates have been revised higher since the earnings report, pushing the Fiscal 2024 Zacks Consensus Estimate up to $1.13 from $1.01.
That is earnings growth of 52.7% as the company only made $0.74 last year.
Analysts were also bullish about fiscal 2025. 4 estimates were revised higher for 2025 in the last week as well, pushing up the Zacks Consensus to $1.28 from $1.20, or another 13% earnings growth.
Image Source: Zacks Investment Research
Shares Soar in the Last 3 Months
Wall Street is bullish about housing, building and remodeling in 2024. Shares of AZEK have been on the tear the last 3 months, adding 45.8% during that time. That is easily outperforming the tech heavy Invesco QQQ ETF.
Image Source: Zacks Investment Research
Shares are not cheap on a valuation basis, however. Investors will pay a premium for the growth. AZEK trades with a forward P/E of 39.4. It also has a P/S ratio of 4.7. A P/S ratio under 1.0 indicates value.
However, AZEK is shareholder friendly. During the quarter, AZEK repurchased about 2.3 million shares under a $100 million accelerated share repurchase agreement. The company expects to settle this accelerated share repurchase agreement in the fiscal second quarter. It does not pay a dividend.
For investors looking for a way to play the hot residential housing market without buying a homebuilder, AZEK should be on your short list.
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