Repair-and-remodeling stock rally hits a wall

KEVIN LORENZI/BLOOMBERG NEWS

Makers of everything from decks to porches and outdoor lighting are lagging behind the broader stock market this year, joining a selloff in homebuilder shares as casualties of a rising-rate environment.

Investors are worried about how tighter monetary policy could weigh on home sales, dragging down the industry’s stocks. Deck manufacturers like AZEK Co. and Trex Co. have each tumbled more than 30% in 2022, while the S&P 400 Building Products Sub Industry Index has plunged nearly 20% — compared with a drop of about 5% for the benchmark gauge of U.S. equities. The losses are part of a broader slide that has also engulfed giants like builder Lennar Corp. and retailer Home Depot Inc.

Housing-related stocks had thrived over the past two years as more people looked to build or improve places that would allow them to spend time with friends and family during the pandemic. Now with the economic reopening, the Federal Reserve about to raise rates and prices of raw materials facing intense volatility, there’s concern about the appetite for those stocks going forward.

Several analysts covering AZEK cut their price targets for the shares since the company reported earnings on Feb. 3. While the results have beaten Wall Street estimates, the stock has slumped about 10% in the span.

The selloff in our view “was more about continued macroeconomic interest-rate fears than the numbers,” said Keith B Hughes, an analyst at Truist Securities, who cut his target for the shares to $45 from $51 last week. B. Riley Securities’ Alex Rygiel also trimmed his price estimate for AZEK “as we are lowering our valuation multiple for rising interest rates and a broader market revaluation of growth stocks.”

Despite lower targets, the vast majority of analysts tracked by Bloomberg still have buy recommendations for AZEK.

The rout this year is creating a “compelling entry point for an attractive secular growth story,” said Kurt Yinger, an analyst at D.A. Davidson.