Raymond James upgrades five homebuilders amid ‘shockingly lean’ inventory

Raymond James analyst Buck Horne raised homebuilder earnings estimates going into Q2 earnings next week, and upgraded several homebuilders to more constructive ratings. Specifically, the analyst upgraded Toll Brothers (TOL) to Strong Buy from Outperform with an increased $100 target price, and upgraded Lennar (LEN), PulteGroup (PHM), KB Home (KBH), and M.D.C. Holdings (MDC) Holdings to Outperform from Market Perform. The firm says it has “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.” It may be time for a reconsideration of traditional homebuilding cyclicality and valuation frameworks that have kept builders trading at “antiquated” price-to-earnings and price-to-book multiples “that are fractions relative to sectors with equally (or more) volatile earnings,” the analyst tells investors in a research note. Raymond James says “shockingly lean” re-sale inventories are driving its change of heart on the group.