RBC Capital Updates Ratings On Homebuilders & Building Products Sector As Housing Demand Declines

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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