For immediate release
Chicago, IL – April 21, 2022 – Zacks.com announces the list of stocks featured in the analyst blog. Every day, Zacks Equity Research analysts discuss the latest news and events impacting stocks and financial markets. Stocks recently featured in the blog include: Lennar Corp. LEN, DR Horton DHI, KB Home KBH and Toll Brothers TOL.
Here are highlights from Wednesday’s analyst blog:
4 stocks to watch amid challenges in the homebuilding industry
The residential construction industry in the United States has recently experienced a downturn due to rising mortgage rates and rising raw material and labor costs. However, the industry is on solid footing as demand for new homes continues to rise.
Needless to say, the homebuilding industry is fighting hard to overcome the challenges and hopes that the growing demand for new homes, especially single family homes, will continue to help sales in the coming days. Given this scenario, actions like Lennar Corp., DR Horton, Knowledge base home and Toll Brothers are likely to benefit from it in the short term.
Housing starts, increase in building permits
Despite the existing challenges, homebuilders hope the scenario will change in the coming days. The Commerce Department said April 19 that housing starts rose 0.3% in March to a seasonally-adjusted annual rate of 1.793 units, beating analysts’ expectations of 1.745 million units.
This follows a revision to February figures from 1.769 million units to 1.788 million units.
Meanwhile, future building permits rose 0.4% in March to 1.873 million units.
The jump in housing starts in March is also the largest since 2016. Additionally, according to the report, multi-family housing starts soared 7.5% to 574,000, the highest level since January 2020. .
March’s rise was unexpected given the rise in interest rates. However, it does prove that homebuilders are hoping for sales to pick up in the near term, as demand for new homes has been on the rise for some time.
Industry faces challenges
The demand for homes was already there, and the pandemic created an additional need for new homes as people moved to sparsely populated areas for fear of contracting the COVID-19 virus.
Increased demand for new homes, coupled with record mortgage rates, helped the homebuilding sector during the peak of the pandemic and even last year as sales hit multi-year highs. However, the residential construction industry has started facing challenges since the second half of 2021.
Rising lumber and raw material costs, coupled with labor shortages, led to escalating home prices, which was the first big challenge for home builders. As if that weren’t enough, rising interest rates also started to dampen home sales.
According to data from mortgage finance company Freddie Mac, the 30-year fixed rate mortgage averaged 5% in the week ending April 14. This is the highest level since February 2011, against 4.72% the previous week.
The Fed raised interest rates by 25 basis points at its last policy meeting in March, the first time since 2018. That hurt buyers. Even then, the demand for homes has increased and people are still willing to shell out more for new homes. This is one of the reasons home builders are still hoping for sales to pick up in the short term.
Stocks to Watch
The homebuilding market is still buoyant, despite rising prices, and demand for homes is expected to continue through 2022. Therefore, now is the time to buy homebuilding stocks.
Lennar Corp. is engaged in residential construction and financial services in the United States. LEN’s reportable segments consist of Homebuilding, Lennar Financial Services, Rialto and Lennar Multifamily. Despite the varied product portfolio, residential construction remains Lennar Corporation’s core business.
Lennar’s forecast earnings growth rate for the current year is 15.1%. The Zacks consensus estimate for current-year earnings has improved 3.9% over the past 60 days. LEN wears a Zacks Rank #2 (Buy). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DR Horton is one of the nation’s leading homebuilders, primarily engaged in the construction and sale of single-family homes in the entry-level and move-up markets. DHI’s business is spread across 91 markets in 29 states in the Eastern, Midwestern, Southeast, South Central, Southwest, and Western regions of the United States. DR Horton homes are sold under the DR Horton brands – America’s Builder, Emerald Homes, Express Homes and Freedom Homes.
DR Horton’s forecast earnings growth rate for the current year is 39.5%. The Zacks consensus estimate for current-year earnings has improved 0.8% over the past 60 days. DHI has a Zacks rank #3 (Hold).
Knowledge base home is a well-known home builder in the United States and one of the largest in the state. KB Homes’ revenues are generated from home building (representing 99.7% of total FY2021 revenues) and financial services (0.3%) activities. KBH’s home building operations include the construction and design of homes that cater to first-time home buyers, moving and working adults on acquired or developed land. KB Home also builds single family homes, townhouses and condominiums.
KB Home’s expected profit growth rate for the current year is 68.3%. The Zacks consensus estimate for current-year earnings has improved 0.2% over the past 60 days. KBH has a Zacks rank of #3.
Toll Brothers Inc. builds communities of detached, attached single-family homes; luxury residential resort-style golf communities planned by masters; and low-, mid-, and high-rise urban communities, primarily on the lands they develop and improve. TOL operates in Arizona, California, Florida, Delaware, Maryland, Pennsylvania and South Carolina. Toll Brothers offers homes in two segments, namely traditional home building products and city living.
Toll Brothers’ forecast earnings growth rate for the current year is 51.1%. The Zacks consensus estimate for current-year earnings has improved 0.8% over the past 60 days. TOL has a #3 Zacks rank.
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