Stock market today: Stocks fall as investors rotate out of tech into Jackson Hole
Monday - Shares of Taylor Morrison Home Corporation (NYSE:TMHC) faced a downgrade from Seaport Global Securities, moving from a Neutral to a Sell rating, accompanied by a new price target set at $55.00. Seaport Global's latest assessment reflects a cautious stance towards the homebuilding sector, particularly highlighting Taylor Morrison's regional margin risks and increasing new supply. This cautious sentiment echoes broader sector concerns, though InvestingPro data shows that major player PulteGroup (NYSE:PHM) maintains strong fundamentals with a "GREAT" financial health score and an attractive P/E ratio of 8.59.
Seaport Global's decision comes after considering the sector's performance in the fourth quarter of 2024 and the subsequent sell-off. The firm acknowledges the potential for a favorable re-rating in valuation due to lower leverage and higher returns on equity post-Covid. However, the firm maintains a negative bias based on several factors including the company's valuation, which is currently 15-20% above its trough levels, and a strong negative earnings bias.
The analysis by Seaport Global also points to a broader sector environment described as a Bear Steepener, a term borrowed from economic analysts Torsten Slok and James Grant, indicating expectations of a good economy which reduces the rationale for rate cuts. This environment is seen amid predictions of a decline in housing starts in the first half of 2025, intended to balance the elevated levels of new for-sale units, which are 30% above the long-term average according to Census data.
In the broader scope of the homebuilding sector, Seaport Global has also adjusted its stance on other companies. It downgraded PulteGroup (PHM) to Sell from Neutral, citing a potential downside of approximately 15% and higher risk due to the company's significant exposure to the Florida market. According to InvestingPro analysis, PHM shows mixed signals with 6 analysts revising earnings downward, though the company maintains strong fundamentals with a 37.5% dividend growth and aggressive share buyback programs. For deeper insights into PHM's valuation and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro. Conversely, the firm upgraded Toll Brothers (NYSE:TOL) and LGI Homes (NASDAQ:LGIH) to Neutral from Sell, noting Toll Brothers' California mix post wildfires and LGI Homes' valuation as factors for the change.
The firm also revised its price target for Meritage Homes Corporation (NYSE:MTH) to $70, acknowledging its higher exposure to speculative closings. Updates to D.R. Horton's (DHI) estimates were also noted following the company's recent earnings release. Based on InvestingPro's Fair Value analysis, PulteGroup currently appears undervalued, with additional metrics and insights available through the platform's advanced stock analysis tools.
In other recent news, PulteGroup, a leading American homebuilding company, has reported a 10% increase in its quarterly cash dividend to $0.22 per common share. This marks the sixth time the company has raised its dividend since 2019, doubling the payout in this period. PulteGroup's Q3 earnings report also exceeded expectations, with an earnings per share (EPS) of $3.35, beating both BTIG's projection of $3.21 and the consensus estimate of $3.11.
In light of these developments, Seaport Global Securities has downgraded PulteGroup's stock rating from Neutral to Sell, setting a new target price at $100. The downgrade follows a sector sell-off in Q4 2024 and concerns about regional margin risks and an increase in new housing supply.
In contrast, Seaport Global upgraded Toll Brothers and LGI Homes to Neutral from Sell, reflecting Toll Brothers' California mix post wildfires and LGI Homes' valuation. The wildfires in Los Angeles have resulted in a rise in homebuilding stocks, including Toll Brothers, due to anticipated increased demand for reconstruction in the affected areas.
These are some of the latest developments in the homebuilding sector.
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