Trex Shares Rise After BMO Capital Upgrades to Outperform, Sees Undervalued Decking Leader

The composite decking market’s reigning champion, Trex Company (NYSE:TREX), saw its stock jump Thursday after BMO Capital Markets upgraded the stock to Outperform, citing an “attractive entry point” amid what analysts call an undervalued opportunity in a shifting industry. The upgrade, paired with a $72 price target, underscores Trex’s dominance in a sector transitioning away from traditional wood products—a trend that could fuel long-term growth if sustained.

Why BMO Upgraded Trex: A Bullish Case for Undervaluation

BMO’s upgrade hinges on two core arguments: Trex’s strategic position in a growing market and its financial strength. The firm noted Trex’s stock trades at 15.9x its 2025 EBITDA estimates, a discount to its 10-year average of 20.2x and far below multiples seen in recent industry acquisitions, such as James Hardie’s purchase of Azek at a valuation implying 100x+ EBITDA. Analyst Ketan Mamtora highlighted Trex’s “pristine” balance sheet—$5.7 billion market cap, debt-to-equity ratio of 0.3, and 29% return on equity—as proof of its resilience amid economic uncertainty.

The analyst also pointed to the completion of Trex’s major capital expenditure program, which could free up cash for share repurchases as early as 2026. BMO estimates this could boost earnings per share by 5-7% annually, a tailwind for investors.

A Divided Analyst Community: Growth vs. Caution

While BMO’s optimism is compelling, broader analyst sentiment remains mixed. Among 17 analysts, the average price target stands at $70.71, implying a 32% upside from recent levels, but the average recommendation is a Hold (2.6). This reflects concerns about weakening consumer demand and contractor spending, which have already caused Trex’s stock to fall 23% year-to-date as of April 17.

• Benchmark remains bullish, maintaining a Buy rating with a $80 target, citing Trex’s strong Q4 results and market share gains.
• Citi and DA Davidson, however, lowered their targets to $60 (Neutral), citing slower decking project activity and surveys suggesting a near-term slowdown.
• Jefferies reduced its target to $71 (Hold) but acknowledged Trex’s 5-7% sales growth potential in 2025.

The Case for Trex’s Long-Term Potential

Trex’s advantage lies in its pole position in the composite decking market, which analysts estimate is growing 5-8% annually as consumers shift from wood to low-maintenance alternatives. The company’s products, which account for ~40% of U.S. composite decking sales, benefit from brand loyalty and scale efficiencies.

Critically, Trex’s financial flexibility sets it apart. With no meaningful debt and consistent free cash flow, the firm is well-positioned to weather economic headwinds. GuruFocus, for instance, estimates Trex’s fair value at $73.26 in one year, implying a 37% upside, based on historical multiples and growth forecasts.

Risks on the Horizon

Despite the optimism, Trex isn’t without risks. The company is highly dependent on housing and outdoor remodeling activity, which could falter if interest rates remain elevated or economic growth slows. Competitors like Azek (now part of James Hardie) and TimberTech are also stepping up marketing efforts, intensifying price competition.

Conclusion: A Stock for Patient Investors

BMO’s upgrade crystallizes a compelling argument for Trex as a value play in a sector with long-term tailwinds. Its discounted valuation, fortress balance sheet, and market leadership suggest it could outperform peers if the composite decking shift accelerates. However, investors must weigh this against near-term risks like economic uncertainty and margin pressures.

With a P/E ratio of 25.4x versus its five-year average of 28x, and a 5.2% revenue growth rate in the trailing twelve months, Trex appears priced for moderate growth—but not yet fully reflecting its potential as the composite decking market matures. For those willing to look past short-term volatility, BMO’s $72 target and GuruFocus’s $73.26 fair value hint at a stock primed to rebound if Trex executes on its capital plans and the housing market stabilizes.

In a sector where durability matters, Trex’s fundamentals—and BMO’s vote of confidence—make it a name worth watching.