RBC Capital Markets analyst Mike Dahl downgraded five stocks of homebuilders and building products in response to an expected further deterioration in housing demand, with mortgage rates rising 50 basis points during the of the last two weeks. and 270 basis points since the beginning of the year. It also upgraded three stocks by re-evaluating the sector.
“We have been clear on our caution in our space, remain cautious and see no urgency in catching a falling knife given the rapidly changing environment and downside risks, although the final leg lower in stocks and signs of greater investor/sell-side capitulation may at least help to better balance risk/reward,” Dahl wrote in a note to clients.
The analyst downgraded PulteGroup (New York Stock Exchange: PHM) to Outperform’s Sector Perform, reflecting a weaker return on the tangible outlook for equities as well as its expectation that multiples will remain depressed during the early innings of the housing slump.
In product inventory building, Jeld-Wen Holding (NYSE: JELD) and installed building products (NYSE: IBP) are downgraded to Underperform from Sector Perform; Beacon Roofing Supply (NASDAQ: BECN) and GMS Inc. (New York Stock Exchange: GMS) to Sector Perform from Outperform.
Note that SA’s Quant rating flagged high-risk Jeld-Wen (JELD) to perform poorly on Wednesday, citing negative EPS revisions and decelerating momentum.
Dahl has also improved a few stocks: Taylor Morrison Home (NYSE: TMHC) to outperform Sector Perform, as the risk-reward ratio is now more positively skewed after the recent pullback, he said. It could also be a potential takeaway target, he added.
Summit materials increased to (NYSE: SUM) to outperform Sector Perform and SiteOne Landscape Supply (NYSE: WEBSITE) to Sector Perform of Underperform.
Compare PHM, JELD, IBP, BCN, GMS and TMHC key stats here.
SA Growth Hunter contributor is more bullish on SiteOne (SITE) than Dahl, pointing to extraordinary results