Credit Suisse Analyst: Headwinds Blast Homebuilders' Outlook
Homebuilders' narrowing margins and mounting risk in the Texas housing market won't be soon offset by positive factors affecting their shares, an analyst said Tuesday.
"We don't feel an urgency to own any builders at the moment," Credit Suisse's Michael Dahl said in a research note.
The analyst cut his ratings to Underperform, from Neutral, on PulteGroup, Inc. (NYSE: PHM), Meritage Homes Corp (NYSE: MTH) and Ryland Group Inc (NYSE: RYL).
Also downgraded by Dahl: Taylor Morrison Home Corp (NYSE: TMHC) to Neutral from Underperform.
Taylor shares slid more than 7 percent recently to $16.06; other stocks on Dahl's list were off by more than 5 percent.
Lower oil prices point to a 20 percent decline in home construction in Texas during 2015 according to Dahl, who said that state accounts for an average of 20 percent of home builders' unit sales.
At the same time, flatter growth in home prices along with higher land costs will result in 2015 margins narrowing by an average of 125 basis points, Dahl said.
Low interest rates and job growth in 2015 won't be sufficient to offset headwinds faced by home builders.
Earnings estimates "need to come down further before the stocks can perform," Dahl said.
One exception to Dahl's downgrades: NVR, Inc. (NYSE: NVR) which he boosted to Neutral, from Underperform.
NVR's East Coast focus and cash return are "providing relative support," Dahl said.
Latest Ratings for PHM
Jan 2015 | Buckingham Research | Downgrades | Buy | Neutral |
Jan 2015 | Credit Suisse | Downgrades | Neutral | Underperform |
Jan 2015 | Morgan Stanley | Initiates Coverage on | Equalweight |
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