JPMorgan analysts are increasingly bullish on the homebuilding sector.
The bank’s analysts raised their December 2024 price target for construction stocks on investors’ enthusiasm for a Fed rate cut next year.
The target increases also include large-cap stocks such as Pulte Group (PHM), which raised its target to $139 from $117 previously, and Toll Brothers (TOL), which raised its target to $127 from $108. Smaller competitors like Meritage Homes Corporation (MTH) and Taylor Morrison Home Corporation (TMHC) were also among the stocks that gained.
The bank also raised its 2024 and 2025 EPS estimates for the sector by 3% and 6%, respectively.
The latest forecast comes as homebuilding stocks have posted strong gains since November on lower interest rates and growing optimism that the Federal Reserve will cut rates next year. At a recent meeting, the central bank signaled it would cut interest rates three times in 2024.
Builders are also benefiting from a lack of inventory in the resale market.
“Ultimately, the recent strong rally in the sector (and the market) compared to the decline over the past three months reflects not only recent interest rate declines, but also increased investor confidence in higher interest rate increases. “The market outlook for 2024 includes the possibility that the Fed will cut interest rates mid-year,” JPMorgan analyst Michael Rehaut said in a note to clients on Thursday. “The outlook is positive, with the economy starting to recover and avoiding even a mild recession.”
Large-cap home construction stocks are up more than 80% year-to-date, while small-cap construction stocks are up more than 70%.
