For Immediate Release
Chicago, IL – February 15, 2024 – Zacks Equity Research shares The AZEK Company Inc. AZEK as the Bull of the Day and Comstock Resources, Inc. CRK as the Bear of the Day. In addition, Zacks Equity Research provides analysis on JELD-WEN Holding, Inc. JELD, Floor & Decor Holdings, Inc. FND and Vulcan Materials Co. VMC.
Here is a synopsis of all five stocks:
Bull of the Day:
The AZEK Company Inc. 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.
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.
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.
Bear of the Day:
Comstock Resources, Inc. is caught in plunging commodity prices. This Zacks Rank #5 (Strong Sell) has suspended its dividend due to weak natural gas prices.
Comstock Resources is an independent natural gas producer with operations in the Haynesville shale in North Louisiana and East Texas. It has a $2 billion market cap.
Third Miss in a Row in the Fourth Quarter 2023
On Feb 13, 2024, Comstock Resources reported its fourth quarter 2023 results and missed for the third quarter in a row. Earnings were $0.10 versus the Zacks Consensus of $0.16. That's a $0.06 miss.
Natural gas and oil sales, including realized hedging gains, were $354 million with the hedging gain amounting to $4.1 million.
It added 23,000 net acres in the Western Haynesville, bringing its acreage in the play to over 250,000 net acres.
It also had "solid results" in the Haynesville shale drilling program.
Dividend Suspended
With natural gas prices so weak, it's not a surprise that Comstock announced that it plans to suspend its quarterly dividend until natural gas prices improve.
It's also going to reduce the number of operating drilling rigs it is running to 5 from 7. Two of those 5 drilling rigs will continue to be deployed in the Western Haynesville play.
Analysts Cut Earnings Estimates
1 estimate has already been lowered for 2024 and 2025 since the earnings report, but the estimates were being slashed even before the earnings report.
The 2024 Zacks Consensus Estimate has fallen to $1.06 from $1.36 over the last 30 days. The 2025 Zacks Consensus Estimate has plunged to $1.56 from $1.96.
However, both years are expected to see significant earnings growth of 125.5% and 46.9%, because Comstock only earned $0.47 in 2023.
Shares Plunge in the Last 6 Months
Commodity stocks will often move along with the commodity and Comstock is no different. As natural gas has plunged, so has Comstock's shares.
While the stock appears cheap with a forward P/E of just 6.9, It doesn't make any sense to buy the stock until natural gas prices rebound. Investors don't even get a dividend for their patience.
For investors interested in the natural gas plays, keep an eye on gas prices. You'll want to buy into Comstock when the prices start to rise again.
Additional content:
3 Construction Stocks Poised to Beat Q4 Estimates
The Construction sector is poised to gain from heightened infrastructure projects and a shift toward energy transition initiatives during the fourth quarter of 2023. However, challenges such as a slowdown in residential activities, given high borrowing costs, weather-related impacts, and elevated labor costs, may hinder overall performance.
Per the latest Earnings Trends report, the fourth-quarter earnings season has so far seen releases from approximately 70.7% of the construction sector's market capitalization on the S&P 500 Index. Of them, the sector's total earnings are down 2.5% from the year-ago period on 1.8% higher revenues, with 87.5% beating earnings per share (EPS) estimates and 62.5% beating revenue estimates.
With the help of the Zacks Stock Screener, we have identified three construction stocks, namely JELD-WEN Holding, Inc., Floor & Decor Holdings, Inc. and Vulcan Materials Co., which are poised to beat the Zacks Consensus Estimate this earnings season.
Factors Shaping Quarterly Performance
The Construction sector's performance in the fourth quarter of 2023 showcases distinct trends across residential and non-residential segments.
For residential-focused companies, challenges persist amidst higher mortgage rates and escalating costs of materials and labor. Consequently, these firms are expected to report lower earnings compared to the same period last year, reflecting softened demand due to higher mortgage rates. However, factors such as the enduring aspiration for home ownership, limited availability of existing homes, modest repair and remodeling activities, and a commitment to cost management contribute to sequential growth.
Conversely, non-residential industry players stand to benefit from heightened demand for infrastructure solutions aimed at advancing energy transition and enhancing reliability, safety, and efficiency. Strong global trends in infrastructure modernization, energy transition, national security, and potential supply-chain investments bolster quarterly results. Additionally, investments in telecommunications networks, especially in 5G technologies, further support performance. Meanwhile, construction companies' business operations are susceptible to weather-related risks in the fourth quarter. Nonetheless, the extension of the construction season due to a mild winter this time is expected to contribute to the growth.
Overall, prudent cost-saving measures, disciplined project management, robust funding programs, and increased demand for road repair and maintenance, coupled with strategic acquisitions, underpin the sector's performance. These actions have expanded geographical reach and product offerings, driving growth during the quarter.
Q4 Expectations
The overall estimate picture is a mixed one for the broader Zacks Construction sector amid challenges associated with the soft residential market, weather-related headwinds, high expenses and labor constraints from the year-ago perspective. Per the latest Earnings Trends report, construction sector earnings are expected to inch up 0.4% for the fourth quarter. This indicates almost the same picture from the third quarter of 2023 growth of 0.9%. Revenues are projected to increase 3.6%, suggesting a deceleration from 5.4% growth registered in the prior quarter.
Which are the Right Picks?
Given the headwinds, it is not easy to find stocks with the potential to trump earnings estimates. Here, the Zacks methodology comes in handy as it helps identify stocks that not only boast solid fundamentals but are also poised to beat estimates this earnings season.
One can narrow down the list with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they report with our Earnings ESP Filter.
Our research shows that for stocks with this combination, the chances of delivering earnings beat are as high as 70%.
Earnings ESP is our proprietary methodology for determining stocks that have the best chances of coming up with an earnings beat in their upcoming earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Winning Stocks
For investors willing to adopt this strategy, we have highlighted three construction stocks that may stand out this earnings season.
JELD-WEN— a residential and non-residential buildings products supplier — topped earnings estimates in all the trailing four quarters, with the average being 126.5%.
JELD is likely to beat expectations when it reports fourth-quarter 2023 results on Feb 19, after market close. This Zacks Rank #3 company has an Earnings ESP of +10.90%.
The Zacks Consensus Estimate for JELD's fourth-quarter EPS is pegged at 25 cents, representing a decline of 46.8% from the year-ago reported figure.
Floor & Décor— a multi-channel specialty retailer and commercial flooring distributor — topped earnings estimates in two of the trailing four quarters and missed in one and met on another occasion, with the average surprise being 4.9%.
FND is likely to beat expectations when it reports fourth-quarter fiscal 2023 results on Feb 22, after market close. This Zacks Rank #2 company has an Earnings ESP of +6.74%. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FND's fiscal fourth-quarter EPS is pegged at 27 cents, representing a decline of 57.8% from the year-ago reported figure.
Vulcan — a construction aggregates producer — topped earnings estimates in three of the trailing four quarters and missed on one occasion, with the average surprise being 13.6%.
VMC is likely to beat expectations when it reports fourth-quarter 2023 results on Feb 16, before market open. This Zacks Rank #3 company has an Earnings ESP of +3.08%.
The Zacks Consensus Estimate for VMC's fourth-quarter EPS is pegged at $1.36, representing a growth of 25.9% from the year-ago reported figure (read more: Vulcan Queued for Q4 Earnings: What Factors to Note).
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Comstock Resources, Inc. (CRK) : Free Stock Analysis Report
Vulcan Materials Company (VMC) : Free Stock Analysis Report
JELD-WEN Holding, Inc. (JELD) : Free Stock Analysis Report
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The AZEK Company Inc. (AZEK) : Free Stock Analysis Report
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