The analysts covering Trex Company, Inc. (NYSE:TREX) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for this year. 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 an uncomfortable 19% decline in sales compared to the last year of performance. Statutory earnings per share are supposed to tumble 24% to US$1.77 in the same period. Prior to this update, the analysts had been forecasting 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 pretty serious decline to earnings per share numbers as well.
The consensus price target fell 14% to US$63.53, with the weaker earnings outlook clearly leading analyst valuation estimates. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. The most optimistic Trex Company analyst has a price target of US$102 per share, while the most pessimistic values it at US$54.00. 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. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 4.1% per year. 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. Regrettably, they also downgraded their revenue estimates, and the latest forecasts imply the business will grow sales slower than the wider market. Furthermore, there was a cut to the price target, suggesting that the latest news has led to more pessimism about the intrinsic value of the business. Often, one downgrade can set off a daisy-chain of cuts, especially if an industry is in decline. So we wouldn't be surprised if the market became a lot more cautious on Trex Company after today.
In light of the downgrade, our automated discounted cash flow valuation tool suggests that Trex Company could now be moderately overvalued. Find out why, and see how we estimate the valuation for free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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