Stock market today: Stocks fall as investors rotate out of tech into Jackson Hole
On Monday, Seaport Global Securities issued a downgrade for PulteGroup (NYSE:PHM) shares, moving its rating from Neutral to Sell with a new price target set at $100. The decision comes in the wake of a sell-off in the fourth quarter of 2024, which has led to a reevaluation of the sector's outlook.
Kenneth Zener, an analyst at Seaport Global, cited several reasons for the downgrade. The concerns include regional margin risks and an increase in new housing supply. Additionally, the valuation of PulteGroup is perceived to be 15-20% above trough levels, which is seen as a negative factor in light of the potential for a strong negative earnings bias. This outlook is tempered by a 20% sector sell-off, which is 24% relative to the S&P, and the possibility of a favorable valuation "re-rating" due to lower leverage and higher return on equity post-Covid.
The analyst's perspective is influenced by macroeconomic views that suggest a Bear Steepener environment, where a good economy reduces the justification for rate cuts. This is informed by the opinions of economists Torsten Slok and James Grant. The anticipated fall in housing starts in the first half of 2025, aimed at addressing the surplus of new for-sale units which are 30% above the long-term average according to Census data, also plays a role in the downgrade.
In addition to PulteGroup, Seaport Global also downgraded Taylor Morrison (NYSE:TMHC) Home Corporation to Sell from Neutral, citing a roughly 15% downside with the risk being higher due to the company's EBIT exposure in Florida. Conversely, the firm lowered its price target for Meritage (NYSE:MTH) Homes Corporation to $70, noting a higher exposure to speculative closings compared to peers.
On a more positive note, Seaport Global upgraded Toll Brothers (NYSE:TOL) and LGI Homes (NASDAQ:LGIH) to Neutral from Sell. The upgrades reflect Toll Brothers' California mix post wildfires and LGI Homes' valuation. Updates to D.R. Horton's estimates were also made following the company's recent earnings release.
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