Many Wall Street analysts reportedly are increasing their price targets for the stocks of home builders as home sales are expected to rise as mortgage rates continue to slide.
J.P. Morgan analyst Michael Rehaut has turned bearish after being bearish on many of the builders for months, Barron’s reported.
Rehaut upgraded shares of PulteGroup (PHM) and KB Home (KBH) to "neutral" from "underweight" Wednesday. He raised his price target on Pulte to $25.50 from $24 and increased his target on KB Home to $23 from $20.50, Barron’s reported.
“We expect the sector’s recent positive momentum to continue this earnings season,” Rehaut wrote in a note, “driven by likely upside to our order growth estimates and an incrementally positive investor sentiment.”
Rather than buy and hold, Rehaut writes, “we believe a more prudent strategy is to look for profit-taking opportunities over the next several months.”
He also likes Taylor Morrison Home Corp . (TMHC) and William Lyon Homes (WLH) as inexpensive small-cap stocks.
To be sure, home-builder Lennar Corp (LEN) said earlier this year it was seeing an improvement in home sales in its new fiscal year as mortgage rates start to ease, Reuters reported.
The second-largest U.S. homebuilder said strong employment, wage growth and consumer confidence were encouraging buyers, and that the moderation in demand in the just-concluded quarter was temporary.
“We are optimistic that improved consumer confidence and wage growth combined with lower mortgage rates will spur increased activity as we move into the spring selling season,” Executive Chairman Stuart Miller said on a conference call.
Lennar, which put off giving its financial outlook for fiscal year ending November, said it expects to achieve its goal of selling more than 50,000 homes in the year, slightly below its previous forecast of 53,000 units.
Analysts said Lennar’s numbers were not as bad as feared in a market that continues to show stable demand.
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