- RBC Capital analyst Mike Dahl further reduces estimates and price targets for Homebuilders & Building Products companies as housing demand declines.
- The analyst expects further deterioration after the most recent jump in rates (+50 bps past 2 weeks and +270 bps YTD).
- Dahl mentions that he has been clear about caution across space, remains wary, and sees no urgency to catch a falling knife given the rapidly changing environment and downside risks.
- Though the most recent leg lower in the stocks and signs of greater capitulation from investors/sell-side may at least help better balance risk/reward, he added.
- For Homebuilders, the analyst believes the actual downside scenario (triggered by lower home prices or a prolonged recession) would be more severe, and multiples are likely to remain depressed to reflect this.
- Dahl says it's still premature to talk about major impairments and believes there is some risk of option write-offs, whereas owned land is still "in the money" even if it produces lower margins vs. the current peak mid-20s to 30% range.
- For Building Products, Dahl expects falling builder orders and existing home sales to pressure building product companies with a lag. Perhaps extended vs. normal given the long project backlogs though there's also the risk that de-stocking could driver quicker impacts, he added.
- PulteGroup, Inc. PHM downgraded to Sector Perform from Outperform, and the price target was lowered to $41 (an upside of 7%) from $56 to better reflect the housing slowdown setting in and downside risks to demand/margins.
- Taylor Morrison Home Corp TMHC upgraded to Outperform from Sector Perform and reduced the price target to $28 (an upside of 30%) from $32.
- Jeld-Wen Holding Inc JELD downgraded to Underperform from Sector Perform. The analyst reduced the price target to $12 (a downside of 10%) from $20, reflecting a decline in earnings outlook and valuation multiple.
- Installed Building Products Inc IBP downgraded to Underperform from Sector Perform, and the price target lowered to $71 from $91.
- Summit Materials Inc SUM upgraded to Outperform from Sector Perform, while the price target was lowered to $31 (an upside of 32%) from $33.
- Beacon Roofing Supply, Inc. BECN downgraded to Sector Perform from Outperform, and the price target was lowered to $58 (an upside of 21%) from $70.
- GMS Inc GMS downgraded to Sector Perform from Outperform, and the price target was lowered to $46 (an upside of 18%) from $73.
- SiteOne Landscape Supply Inc SITE upgraded to Sector Perform from Underperform, while the price target was lowered to $118 (an upside of 5%) from $128.
- Price Action: PHM shares are trading higher by 2.82% at $38.21, TMHC +3.12% at $21.45, JELD +1.83% at $13.37, IBP lower by 7.23% at $71.23, SUM +1.29% at $23.50, BECN -3.99% at $47.83, GMS -2.06% at $39.05 and SITE +0.22% at $112.48 on the last check Wednesday.
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