Low Interest Rates, Federal Stimulus Lead BofA To Raise Homebuilder Price Targets

Homebuilders may be among the beneficiaries from low interest rates and federal stimulus packages aimed at buffering the economic strain from the coronavirus pandemic, according to BofA Securities. 

“We believe current strength in new home, repair and remodeling and recreational vehicle (RV) sales is being driven in part by pent-up demand from a month of sheltering in place,” analyst John Lovallo said in a Tuesday note.

“We also believe that there has been some degree of ‘fear’ buying across industries as apartment dwellers fled cities, homeowners hunkered down and embraced nesting (remodeling) and worried travelers chose recreational vehicles (RVs) as an alternative to airplanes or cruise ships.”

Lovallo acknowledged risk to consumer spending in the back half of 2020 and through 2021, especially if the economy declines and pent-up and pull-forward activity wanes.

Given valuation multiples reflective of historical trends, the analyst increased the following price targets:

• D. R. Horton Inc (NYSE: DHI) from $55 to $67; Buy rating. 
• Forestar Group Inc. (NYSE: FOR) from $16 to $18; Buy rating. 
• KB Home (NYSE: KBH) from $31 to $38; Buy rating. 
• Lennar Corporation (NYSE: LEN) from $55 to $67; Neutral rating. 
• M.D.C. Holdings, Inc. (NYSE: MDC) from $31 to $37; Neutral rating. 
• Meritage Homes Corp (NYSE: MTH) from $65 to $82; Buy rating. 
• NVR, Inc. (NYSE: NVR) from $3,400 to $3,650; Neutral rating. 
• PulteGroup, Inc. (NYSE: PHM) from $32 to $38; Neutral rating. 
• Toll Brothers Inc (NYSE: TOL) from $31 to $35; Underperform rating. 

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