AZEK (AZEK) is a Zacks Rank #1 (Strong Buy) that engages in the manufacturing and selling of building products for residential, commercial, and industrial markets in the United States.

The stock fell apart in 2022 but has rallied over 100% off those lows from last year. Investors have seen a 25% sell-off over the last month, so the question right now is if the stock is a buy before earnings.

The bulls might have a case to stay long as analyst estimates are moving higher as the stock tests technical support. This makes the current trading level an attractive area to enter the stock.

About the Company

AZEK was founded in 2013 and is headquartered in Chicago, IL. The company operates through two segments: Residential and Commercial.

The residential side designs and manufacturers decking, railing, trim, molding, and other similar products. The commercial side manufactures engineered polymer materials used in various industries.

The stock has a Zacks Style Score of “B” in Growth and Momentum. It has a Forward PE of 27 and pays no dividend. AZEK currently employs over 2,100 and has a market cap of $4 billion.

Q1 Earnings Beat

In early August AZEK reported a Q3 beat of 15%. The company also saw a slight revenue beat and guided FY23 higher, seeing $1.34-1.36B v the 1.3B expected.

The company also raised FY23 EBITDA and Capex. Margins were higher at 25% v 21.9% last year.

Management commented that demand signals are providing a positive backdrop for the remainder of the building season. They added that the residential segment sell-through growth is improving versus the prior quarter.

The stock reacted positively, moving about 5% higher after EPS. From there, the stock drifted to February 2022 highs before starting to trend lower.

Analyst Estimates

Analyst estimates have been trending higher since before earnings and have continued to be taken higher since the August earnings report.

Looking at the current quarter, estimates are moving 20% higher over the last 90 days. For the next quarter, estimates have gone from $0.02 to $0.07 over that same time frame, a move of 250%.

Looking at the longer term, estimates are moving higher as well.

For the current year, analysts have taken numbers from $0.57 to $0.68, or 19%. For next year, we see estimates jump from $0.86 to $1.05, or 22%.

Analyst have also raised their price targets since the earnings report.

Goldman reiterated its Buy and lifted its price target to $37 from $32. JPMorgan Chase lifted its target to $37 from $30 and reiterated its Overweight.

AZEK next reports in November and a recent note from Jefferies saying they expect a guide coming in line with consensus. They expect growth in 2024 and believe the stock will react favorably to earnings.

The Technicals

The stock has recently sold off and now resides right at the 200-day moving average. The selling went hand in hand with the overall market sell-off and the move higher in interest rates.

Investors have a solid entry point at the 200-day, which lines up with a 61.8% Fibonacci retracement drawn from May lows to recent highs. This setup provides a good risk reward against the March lows while looking for a return to 2023 highs.

Bottom Line

After a rough ride in 2022, AZEK looks poised to provide solid fundamentals into next year. Earnings are scheduled for the end of November and will be a catalyst for the direction of the stock.

The recent pullback provides a good risk reward for bullish investors and a starter position should be considered at current levels.

— Jeremy Mullin

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Source: Zacks