Homebuilder outlook continues to be strong according to Wedbush -
08:04 AM EDT, 04/18/2018 (MT Newswires) -- Twelve of the 15 homebuilders covered by Wedbush are scheduled to release their earnings in the next four weeks and the firm said it expects no changes to the positive housing story.
The fun kicks of Thursday with NVR (NVR), a homebuilding and mortgage company, releasing first-quarter results. Wedbush analyst Jay McCanless said in a note to clients Wednesday that it's likely going to be more of the same for homebuilders.
"We expect no change to the positive demand story, and we would continue buying builders focused on entry-level price points," he said, naming DR Horton (DHI), Century Communities (CCS) and William Lyon Homes (WLH) specifically. "Depending on the builder, we are looking for growth rates between flat year-over-year to a gain of 60% in the case of LGI Homes (LGIH). We anticipate the builders with a higher-than-average focus on entry-level price points ... should set the pace for the group's order growth comparisons."
Input cost pressures likely will be a key area again as land, labor and lumber prices all have been rising, McCanless said. Cost inflation likely will push builders' margins lower year-over-year, but some may buck the trend due to geographic mix including TRI Pointe (TPH), he said.
Other builders likely will benefit from sales mix as a rising share of entry-level homes helps offset slower sales of move-up homes, said McCanless, who mentioned Meritage (MTH) in that group.
Pricing power will probably be a catalyst for builders as the number of existing homes for sale in some markets are generally below normal averages.
"We believe this lack of competition (existing home sales are typically 75% to 85% of annual housing
transactions) has given builders sufficient pricing power to offset input cost inflation, " McCanless said.
CCS, LGIH
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