Trex Q3 Earnings: Is NYSE:TREX Manipulating Earnings?

in EARNINGS/INVESTING IDEAS by

Trex Company, Inc. (NYSE:TREX) is scheduled to report Q3 earnings results after markets close for trading on November 2, 2020.

The company is expected to report earnings of $0.38/share on revenue of $221.9 million. The consensus earnings per share (EPS) of $0.38/share is based on a poll of 13 analysts and represents a growth in eps of 4.7% over the same quarter last year, when the company reported earnings of $0.36/share.

The revenue forecast of $221.9 million based on a poll of 12 analysts implies a year-over-year (YoY) growth in revenue of 14.1%. Last year the company reported $194.6 million in revenue for the quarter.

Expected to report EPS growth of 4.7% for Q3, 2020
Metric Expected Prior Year YoY Change
Revenue $221.94 $194.55 14.1%
EPS $0.38 $0.36 4.7%

Earnings Call Trends

Historically, management has exceeded analyst expectations 6 out of the last 8 tracked quarters, missed 1 quarter, and met expectations 1 quarter.

What are your expectations from Trex Company, Inc. for earnings this quarter? Let us know in the comments!

Analyst Expected vs. Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2020 $0.32 $0.41 25.0% Beat
Q1, 2020 $0.30 $0.36 21.7% Beat
Q4, 2019 $0.26 $0.30 19.4% Beat
Q3, 2019 $0.34 $0.36 6.2% Beat
Q2, 2019 $0.32 $0.32 0.0% Met
Q1, 2019 $0.30 $0.27 −9.0% Missed
Q4, 2018 $0.18 $0.21 19.4% Beat
Q3, 2018 $0.26 $0.28 10.3% Beat

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending June 30, 2020, the stock price did not react much to the update.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
August 3, 2020 $69.67 $69.46 −0.3% Decline
May 4, 2020 $45.95 $54.60 18.8% Increase
February 24, 2020 $53.15 $51.85 −2.4% Decline
October 28, 2019 $45.06 $42.07 −6.6% Decline

The other question to consider is one of earnings manipulation. There is a lot of pressure on management each quarter to deliver on earnings expectations. The Beneish M-Score is a statistical model that provides some insight into whether the company might be manipulating earnings. With a Beneish M-Score of −1.04, the model suggests that the company is likely an earnings manipulator. A value of −1.04 implies a 14.9% chance of earnings manipulation.

Fundamentals And Technical Analysis

Trex Company, Inc. is currently trading at $74.64/share, down −2.6% for the day. The company is trading at approximately 91.9% of its 52-week high of $81.23/share. The company’s stock price is up 7.5% since the last earnings report and down −1.8% over the previous week.

The company’s 14 Day Relative Price Index (RSI) of 52.15 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.


NYSE:TREX Stock Price Chart
Source: Finbox

The current share price implies a price-to-earnings (P/E) multiple of 51.71 and a forward P/E multiple of 52.57.

Trex Company, Inc.’s current share price also implies a price-to-book (P/B) multiple of 17.29. The following table summarizes some other key fundamental ratios:

Data as of October 27, 2020
Metric Value
Last Reported Fiscal Period Key FY2020.Q2
Period End Date June 30, 2020
Stock Price (Current) $74.64
P/E Ratio 51.7x
P/E Ratio (Fwd) 52.6x
PEG Ratio 1.4
Total Debt / Total Capital 0.4%
Levered Free Cash Flow -$29.855 million
EV / EBITDA 36.9x

Finbox

Trex Company, Inc. is a mid-cap stock with a market capitalization of $8.64 billion and a total enterprise value of $8.666 billion. The company operates in the Industrials sector and the Building Products industry.

Trex Company, Inc. manufactures and distributes wood and plastic composite products, and related accessories for residential and commercial decking, and railing applications in the United States. It offers Trex Transcend, Trex Select, and Trex Enhance protective shells for protection against fading, staining, mold, and scratching; and Trex Hideaway, a hidden fastening system for grooved boards; and Trex DeckLighting, a LED dimmable deck lighting for use on posts, floors, and steps. The company also provides Trex Transcend Railing products used in Trex decking products and other decking materials; Trex Select Railing for simple clean finished look; Trex Enhance railing system; and Trex Signature aluminum railing for contemporary look. In addition, it offers Trex Seclusions fencing product, including structural posts, bottom and top rails, pickets, and decorative post caps; and Trex Elevations, a steel deck framing system. Further, the company acts as a licensor in various licensing agreements with third parties to manufacture and sell products under the Trex name, including Trex Outdoor Furniture; Trex RainEscape, an above joist deck drainage system; Trex CustomCurve that allows contractors to heat and bend Trex products; Trex Pergola, a cellular PVC product; Trex Latticeworks outdoor lattice boards; Trex Cornhole boards; Diablo Trex Blade, a saw blade for wood-plastic composite decking; Trex SpiralStairs and structural steel posts; Trex Outdoor Kitchens, Cabinetry, and Storage; and Trex Outdoor Fire & Water products. Additionally, it offers architectural and aluminum railing systems, and staging equipment and accessories. The company sells its products through wholesale distributors, retail lumber dealers, and Home Depot and Lowe’s stores, as well as through its direct sales staff, independent sales representatives, and bidding on projects. The company was founded in 1996 and is headquartered in Winchester, Virginia.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.