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Wells Fargo downgrades Toll Brothers as new home demand slides

Toll Brothers won’t be able to sidestep a rapid change in the housing market, according to Wells Fargo. After booming in the second half of 2020 and 2021, the homebuilding market appears to be coming to a halt. Builder sentiment fell sharply in June , and mortgage applications have been cut in half as mortgage rates are spiking. Wells Fargo analyst Deepa Raghavan downgraded Toll Brothers to equal weight from overweight, saying that the changing trend will hit all areas of the market. “Our proprietary housing market checks in May confirmed that housing inflection happened in April. The slowdown was more evident at the value end of chain (Entry level spec builders) and is slowly broadening (the luxury, BTO builders will be the last to feel). Given the unprecedented rise in interest rates YTD, housing market softness is hitting faster than many anticipated,” Raghavan wrote. Wells Fargo described Toll Brothers as a “mid-cycle play” whose time has passed, and said that the company’s build-to-order market wouldn’t escape the downturn. “BTO luxury is holding strong for now, but should follow general housing market with a lag as the cycle inflects,” Raghavan wrote. Toll Brothers is already down more than 40% year to date, but the stock could have trouble bouncing back. Wells Fargo cut its price target on Toll to $48 per share from $56. The new target is about 15% above where the stock closed on Thursday. — CNBC’s Michael Bloom contributed to this report.

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