"We've been clear about our caution across our space, remain wary, and see 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 to better balance risk/reward," RBC analyst Mike Dahl said in a Wednesday note to clients unveiling the changes.
For shares of homebuilders, the firm said it lowered price targets by 23% on average, citing "significant demand declines and margin pressures, as rising rates and sharply stretched affordability are quickly eroding the pool of buyers." It added: "The lack of visibility given the rapidly changing environment, ongoing [Federal Reserve] tightening, and downside risks from lower prices/higher incentives and the prospect of a recession are all likely to remain overhangs on multiples."
For shares of building products, RBC cut price targets by 21% on average. "We expect 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 risk that de-stocking could driver quicker impacts," the firm said.
RBC also noted it cut price targets on shares of building product distributors by 19% on average.
The firm downgraded its investment ratings on Beacon Roofing Supply (BECN), GMS (GMS) and PulteGroup (PHM) to sector perform from outperform. It downgraded its investment rating on Installed Building Products (IBP) and JELD-WEN (JELD) to underperform from sector perform.
However, RBC upgraded its investment rating on Equity Residential (EQR), Summit Materials (SUM) and Taylor Morrison Home (TMHC) to outperform from sector perform. It also upgraded its investment rating on SiteOne Landscape Supply (SITE) to sector perform from underperform.
(MT Newswires covers equity, commodity and economic research from major banks and research firms in North America, Asia and Europe. Research providers may contact us here: https://www.mtnewswires.com/contact-us)
Price: 10.22, Change: +0.01, Percent Change: +0.1
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