Why BofA Downgrades Homebuilders Owens Corning, Dream Finders Homes

New home demand has deteriorated over the past few weeks due to the spike in mortgage rates, a sharp decline in consumer confidence and the weaker economic growth outlook, according to BofA Securities.

BofA On Owens Corning

Analyst Rafe Jadrosich downgraded the rating for Owens Corning OC from Buy to Underperform, while reducing the price target from $119 to $80.

The company has “relatively high new construction exposure,” estimated at more than a third of insulation and 20% of roofing, the analyst wrote in the note.

“In insulation, we now expect volume to decline ~10% YoY in 2023 and margins to compress. Composites could slow in 2023 with weaker industrial demand,” he added. Jadrosich further mentioned there seems to be a limited upside to roofing, with “margins and sales likely near peak levels.”

BofA On Dream Finders Homes

Analyst Jadrosich downgraded the rating for Dream Finders Homes Inc DFH from Neutral to Underperform, while reducing the price target from $18 to $ $10.50.

The backdrop for Dream Finders Homes is more challenging than for other builders, the BofA analyst said in the note. He explained that the company has “high exposure to entry-level homebuyers,” higher financial leverage than peers and “a significant portion of DFH’s optioned land (estimate >40%) was contracted in the last year at potentially elevated land prices.”

OC, DFH Price Action: Owens Corning’s stock had declined by 2.03% to $74.64, while shares of Dream Finders Homes had declined by 9.48% to $10.70 at the time of publication Friday.

Photo: Kanjana Kawfang via Shutterstock