Housebuilders have plenty of potential to rise higher, according to Jefferies
Housebuilders should still be considered recovery plays, says broker Jefferies, which has raised its price targets across the sector.
A robust market with good rates, selling prices, margins, as well as the return to land investment, gives the potential for 20% upside said the broker.
“We see this earnings’ momentum as continuing to drive the outperformance of housebuilders.
“Across a backdrop of demand for housing that has stepped up since COVID, bank lending and ambitions to lend remaining strong and comfortable affordability, we continue to expect housebuilder selling rates to remain robust.
“With housebuilders already selling for beyond the end of the stamp duty holiday in September, we see more limited risk as government support rolls off.
“We forecast build rates and sales outlets will remain the constraint on completions, with the latter forecast to be the driver of growth in the coming years.
“The dividend yield we believe is yet to return to the support it has been previously.
“But with yields of up to 7.4% from net cash balance sheets, with scope for earnings upgrades to drive this higher, it will likely come back to the fore in the coming 12 months.”
Jefferies’ preferred stocks are Persimmon PLC (LON:PSN – financial quality, upside to forecasts, limited risk profile), Taylor Wimpey PLC (LON:TW. – value among large caps, scope for upside surprise FY22-23).