We assign AZEK shares a 12-month target price of $51.50 based on JHX's takeout price as we see the proposed deal as likely to complete. Our $51.50 target price implies an ~18.8x multiple to NTM EBITDA.

This stock is High Risk based on our quantitative model, but assigning a High Risk rating is not supported by AZEK’s strong growth prospects and relatively defensive business model. Thus, a High Risk rating has not been applied.


Key risks to achieving or surpassing our target price include:


M&A risk – If JHX's proposed acquisition of the company is not completed, AZEK shares could be negatively impacted.


Operational risk – The company is investing to improve operational performance and add production capacity; if these investments fail to meet expectations, AZEK earnings could be negatively impacted. If these investments exceed expectations, AZEK earnings could be positively impacted.


Competitive risk – Outdoor Living is an attractive category, demonstrating fast growth and strong margins and returns. If competitive intensity increases, AZEK earnings could be negatively impacted.


Economic risk – Decking is ultimately a discretionary product and AZEK generates ~80%+ of sales from resi repair & remodel spend. Accordingly, a weaker economy and lower R&R spending could negatively impact AZEK's earnings.


If the impact on the company from any of these factors proves to be greater or less than we anticipate, the stock will either outperform or underperform our target price.