Trex Shares Surge on Surprise Profit

NEW YORK ( TheStreet) -- Shares of Trex Co. ( TREX) jumped on heavy volume Monday after the maker of wood-alternative decking products posted a surprise profit for its fourth quarter.

The Winchester, Va.-based company reported adjusted earnings of $3.6 million, or 23 cents a share, for the three months ended Dec. 31, on sales of $75.3 million. The average estimate of analysts polled by Thomson Reuters was for a loss of 52 cents a share on sales of $60.7 million. Including charges, Trex lost $500,000, or 3 cents a share, in the latest quarter.

The stock rose $2.91, or 11%, to $29.58 on volume of around 950,000, more than seven times its three-month trailing daily average of 120,000. The shares have gained more than 30% in the past year, hitting its previous 52-week high of $27.11 on Feb. 18. Earlier in Monday's session, the stock reached a new peak of $30.90, its first move above $30 since May 2006.

"Sales broke our fourth quarter record as both distributors and dealers responded enthusiastically to our products, sales programs and pricing strategy," said Ronald Kaplan, the company's chairman and CEO, in a statement. "Our Trex Transcend collection contributed strongly to sales, and is now widely recognized as the number-one brand of high-performance decking and railing."

Trex also offered up an in-line sales outlook of $70 million for its current fiscal first quarter ending in March.

Wall Street was bullish on Trex ahead of the report with six of the eight analysts covering the shares at strong buy and the median 12-month price target sitting at $35.

Canaccord Genuity reiterated a hold rating and $28 price target on the stock following the report, mainly because of valuation concerns as it was very positive about the company's performance and lifted its earnings estimate for fiscal 2011 to $1.40 a share from $1.00 a share to reflect improving gross margins and a lower tax rate.

"With Transcend start-up costs now behind the company, we see GMs gross margins expanding to an estimated 32.9% in 2011," the firm said. "We note that Trex talked about achieving mid-30% GMs this year, so our estimate may prove somewhat conservative if management can hit this target."

The lower tax rate is expected to come from continuing tax loss carryforwards, Canaccord said, citing management comments that the company's tax rate would be "de minimus" in 2011, leading the firm to assume a single-digit percentage rate of 5%.

Underlining the positive performance of Trex shares of late, based on Friday's close at $26.67, the stock had already moved 7.2% beyond its 50-day moving average of $24.75 and 21% above its 200-day moving average of $21.06.

-- Written by Michael Baron in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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