Trex Company, Inc. TREX is benefiting from increased investments in product innovation, strategic partnerships for expanding its distribution network and its focus on ensuring shareholder value.

This manufacturer of wood-alternative decking and railing has gained 5.6% in the past three months, outperforming the Zacks Building Products - Wood industry, Zacks Construction sector and the S&P 500 Index. The detailed price performance is shown in the chart below. The ongoing optimism surrounding the Fed rate cuts is expected to boost the U.S. housing market and increase spending on other non-residential projects, thus fostering TREX’s prospects in the upcoming period.

Image Source: Zacks Investment Research

The Zacks Consensus Estimate of the company’s 2025 earnings per share (EPS) has remained unchanged at $2.20 over the past 30 days. However, the estimated value indicates 7.7% year-over-year growth. Furthermore, in the past 60 days, the earnings estimates for 2024 have moved up to $2.05 per share from $2.03, indicating 10.2% year-over-year growth. TREX’s earnings have surpassed expectations in each of the trailing four quarters, the average surprise being 9%.

However, rising selling, general and administrative expenses, due to increases in branding, personnel-related expenses, and disposal of manufacturing equipment, are hurting the company’s bottom line to some extent.

Let us discuss the factors why investors must retain this Zacks Rank #3 (Hold) stock for now.

What’s Shaping TREX Stock’s Prospects?

Focus on Product Innovation: TREX prioritizes strategic investments in new product development to pave through economic uncertainties and balance out revenue growth through a mix of diversified product offerings. Recently, the company stated that new products launched within the last 36 months (as of October 2024) accounted for approximately 18% of its net sales of $984 million in the first nine months of 2024. The contribution proportion highlights the underlying strength of its diversified portfolio complementing its customers’ preferences.

Moving into 2025, TREX is amping its game in the market with new and enhanced product launches that will be available for the season. The new offerings include steel, aluminum, cable and glass railing systems, along with enhancements to the Trex Select composite railing system, designed to compete with vinyl railing and wood railing. Furthermore, the addition of four new decking colors, two for its premium Transcend Lineage line and two for the Trex Enhance decking line, is worth noticing. TREX believes that with the ongoing pace of innovation and the current product portfolio, it can expand its share in the highly fragmented residential railing market to 12% (currently at about 6% share) over the next five years.

Expanding Distribution Network: TREX has been indulging in strategic partnerships to expand its distribution network throughout the country. This effort highlights the company’s aim to reach out to new customers and familiarize them with its diversified product portfolio, thus fostering its sales revenues.

In December 2024, the company indulged in three reported partnerships with International Wood Products, Weyerhaeuser Company and Alexandria Moulding, aimed at expanding its distribution network. The partnership with International Wood will expand TREX’s footprint in the high-growth markets of Northern California and Northern Nevada while the collaboration with Weyerhaeuser will increase access to its premium decking and railing products in California, Nevada, Arizona and New Mexico. The company’s partnership with Alexandria Moulding will bring its premium outdoor living solutions to a broader audience of Canadian retailers, homeowners and contractors.

Rewarding Shareholders: Through a balanced capital allocation strategy, TREX has been ensuring shareholder value along with investing the free cash flow for business enhancement activities. During the first nine months of 2024, the company returned $100 million to its shareholders by repurchasing 1.6 million shares.

Furthermore, the company’s trailing 12-month return on equity (ROE) is indicative of its growth potential and focus on maintaining shareholder value. Its ROE of 28.9% compares favorably with the industry’s 13.4%, indicating more efficiency in using shareholders’ funds than peers.

Headwinds to TREX’s Growth

The persisting inflationary scenario in the market is hurting the margins of the company to some extent. Due to the inflated scenario, TREX is facing higher labor costs and utilities. Furthermore, during the first nine months of 2024, the company’s selling, general and administrative expenses increased 5.2% year over year to $140.7 million. The uptick was due to increases of $2.5 million in branding, $2.4 million in personnel-related expenses, $1.2 million in disposal of manufacturing equipment and $0.9 million in depreciation.

Key Picks

Here are some better-ranked stocks from the same sector.

Sterling Infrastructure, Inc. STRL presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

It has a trailing four-quarter earnings surprise of 21.5%, on average. Shares of STRL have gained 50.4% in the past six months. The Zacks Consensus Estimate for STRL’s 2025 sales and EPS implies an increase of 7.3% and 8.1%, respectively, from the prior-year levels.

EMCOR Group, Inc. EME currently sports a Zacks Rank of 1. EME delivered a trailing four-quarter earnings surprise of 32.3%, on average. The stock has gained 27.8% in the past six months.

The consensus estimate for EME’s 2025 sales and EPS indicates an increase of 6.6% and 7.2%, respectively, from a year ago.

MasTec, Inc. MTZ presently sports a Zacks Rank of 1. MTZ delivered a trailing four-quarter earnings surprise of 40.2%, on average. The stock has gained 31.8% in the past six months.

The Zacks Consensus Estimate for MTZ’s 2025 sales and EPS indicates an increase of 8.8% and 43.4%, respectively, from a year ago.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

EMCOR Group, Inc. (EME) : Free Stock Analysis Report

Sterling Infrastructure, Inc. (STRL) : Free Stock Analysis Report

Trex Company, Inc. (TREX) : Free Stock Analysis Report

MasTec, Inc. (MTZ) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research