The AZEK Company: A Reasonable Play On Building Products

grahamheywood/E+ via Getty Images The building products market in the US is significant in size. This is because it has to be. The country is so large and there are so many players competing in the housing and commercial real estate markets that there exists demand for a large number of players. One such firm that investors would be wise to take a look at is The AZEK Company ( AZEK ). In recent years, AZEK has exhibited attractive growth on its top line. Cash flows have also been trending higher at a nice clip. That growth looks set to continue through the company’s 2022 fiscal year at least. And as a result, investors should anticipate further value creation by the business. Of course, such a rapidly growing enterprise does not come cheap. But shares are not as pricey as you might think. Although costly relative to similar firms, shares look to be, at worst, fairly valued and might actually be slightly underpriced given how rapidly business is expanding. A building products specialist

AZEK operates today as a designer and manufacturer of both residential and commercial building products. Through the company’s manufacturing and recycling facilities in Ohio, Pennsylvania, Minnesota, and, soon, Idaho, the company provides a large portfolio of building products for their customers. Through the company’s residential segment, which accounted for 89% of the firm’s overall sales in 2021, it sells a variety of products such as decking, rail products, and similar accessories. Combined, these products make up 73% of the company’s overall revenue. On the decking side, it sells both capped wood composite and PVC decking products, namely through three key brand names. These are TimberTech AZEK, TimberTech PRO, and TimberTech EDGE. Railing products include both composite and aluminum rails, with a special emphasis on the aluminum side because of what management describes as a rapidly growing market niche. In addition to these products, the segment also sells exterior goods that made up a combined 27% of revenue for the firm in 2021. These products include, but are not limited to, those associated with trim and molding activities, all made out of PVC. The company also sells products such as skirt boards, corner boards, column wraps, and more.

The other key segment the company has is its Commercial segment. Products sold here include Vycom-engineered polymer materials designed to replace wood, metal, and other materials that are used in a variety of building applications. Many of these products are made under consultation with major OEMs. In addition to this, the company also makes and sells Scranton Products. These include bathroom partitions, shower and dressing stalls, lockers, and other storage solutions. Brand names the company markets under include Aria, Eclipse, Hiny Hiders, TuffTec, and DuraLife. All combined, this segment accounts for the remaining 11% of the company’s revenue. Author – SEC EDGAR Data Over the past few years, the financial performance achieved by AZEK was impressive. Between 2017 and 2021, revenue with the business grew from $632.6 million to $1.18 billion. This represents an annualized increase of 16.8%. The growth of the business was particularly robust between 2020 and 2021, when revenue jumped by 31.1% in just one year. For the first three months of the company’s 2022 fiscal year, growth for the business continued to be strong. Sales of $259.7 million represented an increase of 22.3% over the $212.3 million the company reported one year earlier. For the full 2022 fiscal year, management now expects revenue to come in between 17% and 21%, higher than what the company achieved in 2021. At the midpoint, this would imply sales of $1.40 billion. While the company is benefiting from organic growth, there is no denying that acquisitions played a part in recent growth and will continue to factor into near-term growth. Author – SEC EDGAR Data As revenue has risen, the bottom line for the company has gradually improved. Admittedly, net income for the business has been very volatile. But operating cash flow has trended consistently higher. Back in 2017, it totaled just $57.4 million. By 2021, it had risen to $207.7 million. Another important metric to consider is EBITDA. Management did not offer data for the company’s 2017 fiscal year here. But between 2018 and 2021, it increased each year, climbing from $150.1 million to $274.2 million. With 2022 now underway, it is worth noting how the company is performing already. In the first three months of the year, net profits of $16.7 million beat out the $10.1 million reported […]

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