The real estate market remains under pressure due to the higher interest rate environment. Rising mortgage rates dragged demand down. Surprisingly, real estate-related stocks like Redfin (NASDAQ:RDFN), PulteGroup (NYSE:PHM), and Toll Brothers (NYSE:TOL) have defied the weak demand environment so far this year and witnessed an impressive recovery.
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For instance, shares of the tech-based real estate company Redfin shot up by approximately 268% year-to-date. During the same period, homebuilding companies, including PulteGroup and Toll Brothers, have gained about 76% and 65%, respectively (see the graph below).
While demand remains low, it still outpaces supply as the inventory of new homes has dried up in the U.S. This has given a boost to these stocks. Another positive development has been the continued moderation in the inflation rate. This indicates that mortgage rates will likely stabilize as the Fed eases its monetary policy and puts a brake on further interest rate hikes.
In addition, these companies are focusing on driving operational efficiency and reducing costs to support the bottom line, which is positive. As these real estate-related stocks have risen significantly, let’s understand what analysts recommend about their prospects.
Is Redfin a Buy, Hold, or Sell?
Redfin stock has gained substantial value, reflecting its efforts to cut costs and drive sustainable earnings. The company managed to cut back losses, which is positive and has delivered improved revenue per brokerage transaction. While the company’s transformation initiatives have started to hold ground, the positives of these measures are already reflected in its share prices, noted Tom White of D.A. Davidson.
The analyst downgraded RDFN stock on July 12. However, he maintained the price target of $10.
Overall, RDFN stock has six Hold and four Sell recommendations, reflecting a Moderate Sell consensus rating. Analysts’ average price target of $8.09 implies 48.11% downside potential from current levels.
Is Toll Brothers a Buy?
TOL stock benefitted from better-than-expected Q2 home deliveries and strong cost-control measures to drive margins. Despite the recent run, Oppenheimer analyst Tyler Batory raised the company’s price target to $99 from $80 on July 6 and maintained a Buy recommendation. The analyst cited TOL’s strong balance sheet and high ROE for the bullish stance. Also, the analyst expects TOL to deliver enhanced capital returns.
Overall, Toll Brothers stock has 10 Buy, three Hold, and two Sell recommendations for a Moderate Buy consensus rating. Moreover, due to the recent rally, analysts’ average price target of $81.83 is roughly in line with the current market price.
Is PHM a Good Stock to Buy?
PHM is benefitting from its strategy of increasing the units in production, which positions it well to capitalize on demand amid a shortage of new homes. Furthermore, its improving margins, robust balance sheet, and solid backlog keep analysts bullish on the stock.
Along with Toll Brothers, Batory also increased the price target on PulteGroup stock to $94 from $80 and reiterated Buy. Meanwhile, Citi analyst Anthony Pettinari also raised PHM’s price target for July 5 based on factors such as industry-leading margins, improving demand, and a reduction in costs.
PHM stock sports a Strong Buy consensus rating on TipRanks based on 10 Buy and three Hold recommendations. Further, analysts’ average price target of $82.31 implies 2.89% upside potential.
