Why BofA Is Downgrading Azek Ahead Of Q4 Report

Despite strong housing tailwinds, Azek Company Inc’s AZEK may be negatively impacted by hopes of a COVID-19 vaccine, according to BofA Securities.

The Azek Analyst: John Lovallo downgraded Azek from Neutral to Underperform and reduced the price target from $39 to $36.

The Azek Thesis: The hopes of a COVID-19 vaccine may have a negative impact on the shares of “perceived virus beneficiaries” like Azek, Lovallo said in the Thursday downgrade note.

The stock appears “tipsy,” especially given the recent downturn of its closest rival Trex Company Inc TREX, he said.

“We continue to believe AZEK should trade at a discount to TREX, given lower margins, lower returns, less brand recognition and higher financial leverage.”

Lovallo said he expects Azek to report strong results for its fiscal fourth quarter when it reports Dec. 3.

“Notwithstanding, we believe it could become increasingly challenging for the market to support relatively elevated composite decking industry valuations if risk of a return to a more “normal” pre-COVID world exists.”  

AZEK Price Action: Shares of Azek were down 0.51% at $35.25 at last check. 

Photo courtesy of Azek.