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Raymond James analysts told investors that housebuilders’ resilience to rates is poised to continue, and re-ratings are merited.
“We are refreshing our macro U.S. housing projections, raising homebuilder EPS estimates going into 2Q23 earnings next week,” they wrote.
“We have belatedly come to the realization that the magnitude of pent-up demand for single-family homes – coupled with the proven resilience of builders’ de-risked operating models – warrants a refreshed valuation approach,” they added. “In fact, we’d suggest it may be time for a wholesale reconsideration of traditional homebuilding cyclicality and valuation frameworks that have kept builders trading at antiquated P/E and P/B multiples that are fractions relative to sectors with equally (or more) volatile earnings.”
Raymond James expects more 2Q momentum, with homebuilders now attracting significantly higher-income and more well-qualified households into their communities, likely pulling many move-up and luxury buyers that are increasingly frustrated with scarce existing home inventory options.
