CFRA’s Leon: stay away from the homebuilder stocks

By:
on Jun 16, 2022
  • Kenneth Leon explains why he's bearish on homebuilder stocks.
  • The CFRA expert currently only likes Toll Brothers in this space.
  • SPDR S&P Homebuilders ETF is down roughly 35% year-to-date.

“XHB” down roughly 35% for the year might be attractive for many, but CFRA’s Kenneth Leon continues to suggest keeping away from the homebuilder stocks.

Macro landscape is against homebuilder stocks

Leon agrees now isn’t as bad as the housing crisis of 2008, but expects these stocks to struggle over the next twelve to eighteen months. This afternoon on CNBC’s “The Exchange”, he said:

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Macro picture will continue to get weaker. Traffic to selling communities today was 47, that’s red. New residential sales show all categories down except $0.75-$1.0 million and $1.0 million. 6.0% mortgage rate plus and going higher is demand destruction.

According to the CFRA expert, estimates have to come down for the homebuilder stocks to bottom. In contrast, majority of the analysts are still very bullish.

Homebuilders’ revenue growth to plunge sharply

Kenneth Leon disagrees with the idea of buying homebuilder stocks because there’s a shortage of houses in the United States since that’s been the case for more than a decade. He added:

On a year-over-year basis, homebuilding companies will have 25% to 30% revenue growth in 2022. Next year, the year-over-year revenue growth will be only 2.0% to 4.0%. That’s where the fundamentals are for homebuilders as we go to 2023.

The only name that he’s constructive on in this space is Toll Brothers Inc (NYSE: TOL) that reported better-than-expected results for its fiscal Q2 last month. The stock is down 35% versus the start of 2022.

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