Lennar, KB Home, Pulte Surge 5% Even as RBC Cuts Targets

It’s fair to say that tapering talk has not been kind to homebuilders.

AP

The SPDR S&P Homebuilders ETF (XHB) has dropped 10.5% during the past three months, or about when all the talk about an end to the Fed’s bond buying really picked up, compared to a 2.7% return for the S&P 500.

And the headwinds for the housing sector could be getting worse, according to an RBC report. Analysts Robert Wetenhall and Desi DiPierro cut their forecast for housing starts to 925,000 in 2013, down from 950,000, and took the knives to their price targets for the sector. They write:

We are cutting estimates and price targets for homebuilder stocks to reflect concerns about slower order growth and lower valuations. The downward revision to our estimates reflects our view that the pace of the housing recovery will moderate in the absence of faster economic growth and historically cheap mortgage financing. We expect that order growth for the public homebuilders will generally be consistent with the broader housing market which points to an increase of 14% instead of our prior forecast of 26% in 2014 and 10% instead of 17% in 2015. A high degree of seasonality and rising interest rates also means that valuations will most likely remain under pressure with little chance of multiple expansion in the near-term.

Their favorites in the sector include Lennar (LEN), which had its price target cut to $36 from $41, KB Home (KBH), which had its target cut to $20 from $25, and PulteGroup (PHM), which had its target cut to $20 from $26. Toll Brothers (TOL)’s target got the biggest haircut, from $41 to $29.

Investors are having none of it, however. Lennar has gained 5% to $33.24 today, KB Home has jumped 5.5% to $17.23, Pulte has climbed 5.5% to $15.94 and Toll Brothers has advanced 3.7% to $32.42.