© Reuters. KeyBanc Upgrades Homebuilders – Early Pain Equals Early Gain
By Sam Boughedda
A KeyBanc Capital Markets analyst upgraded the firm’s stance on homebuilders to Overweight from Underweight based on their “Early Pain = Early Gain” thesis.
He told investors in a research note that, on balance, they see fundamental and rate pressure persisting but positive relative performance, supporting their upgrades.
Shares of D.R. Horton Inc (NYSE:), Lennar Corp. (NYSE:), Meritage Homes Corporation (NYSE:), PulteGroup (NYSE:), and TopBuild (NYSE:) were moved to Overweight, and KB Home (NYSE:) and Toll Brothers (NYSE:) were moved to Sector Weight.
The analyst stated that since their January 2022 downgrade, fundamentals are weaker, credit policy is tighter, and builder valuations are lower, but the essence of their call “lies between Jessie Livermore (‘There is a time to go long, a time to go short, and a time to go fishing’) and Wayne Gretzky (‘Skate to where the puck is going, not to where it is’).”
“Financial Repression, to deflate debt, implies no Volcker ‘normalization,’ in our view, expressed well by Mark Spitznagel,” added the analyst.
He later added that data since 1963 shows homebuilders falling 41% (28% vs. S&P) and rising 194% (141% vs. S&P) during each cycle, but what has surprised them is how early builders are compared to the market.
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