Wedbush favors homebuilders that can deliver in a 'timely fashion'

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By Sam Boughedda

Wedbush analysts said in a note Friday that a favorable rate environment in 2023 should support owning affordable builders that can deliver homes in a timely fashion, such as Outperform-rated Cavco Industries (NASDAQ:CVCO), Skyline Corporation (NYSE:SKY), D. R. Horton (NYSE:DHI), and Century Communities (NYSE:CCS).

"Stable or declining rates should support owning builders, and a rising or volatile rate environment may result in underperformance versus the market," wrote the analysts.

They added that whether you look at the macro predictions for housing starts/new single-family sales or the Thomson consensus EPS estimates for its builder coverage, the trend assumptions appear to be the same.

"Mid-single digit to low double-digit percentage declines Y/Y in 2023 for starts and new single-family sales and double-digit percentage drops in public builder EPS," the analysts explained. "In 2024, the macro forecasters we monitor expect double-digit Y/Y percentage gains for single-family starts and new single-family sales with a mid-single-digit decline in multifamily starts. The 2024 consensus EPS estimates reflect average growth of 14% Y/Y versus 2023. See pages 3 and 4 for more details."

They explain that Wedbush has focused client attention on spec builders because they believe the ability to dial supply up and down depending on local market demand provides a higher level of operating flexibility than the to-be-built operators.

"Consumers have shown a preference for quick move homes (i.e. closing in less than 90 days) during C2H22, which may be another tailwind for spec builders heading into 2023," continued the analysts.