Tuesday, September 19, 2006

Calls of Note Part 5

- SunTrust Robinson Humphrey downgrades Trex Co (NYSE:TWP) to Neutral from Buy saying they have picked up multiple points of commentary in the composite decking industry regarding a deceleration in business, starting roughly in August and continuing into September. Overall volume has fallen substantially in recent weeks after a strong 2Q06 and has led to price cutting among manufacturers. While some end of year discounting is normally seen during this period, the current trend is much more serious than in years past. As a result, they have cut both revenue and margin assumptions for TWP, resulting in a 2006 EPS of $0.89 versus management guidance of $0.95-$1.05 and mean of $0.98.

Firm's new estimate places the stock at a roughly 22x 2007 P/E representing an upper end multiple on TWP's historic trading pattern. They see little upside in the name and substantial risk given lower expected manufacturing utilization.

Notablecalls: While I don't like highlighting rating changes on this page, I think this note has broader implications on the sector. Would not be surprised to see TWP's competitor Beacon Roofing (NASDAQ:BECN) see some pressure following SunTrust commentary regarding deceleration in business, starting roughly in August and continuing into September.

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