Bank of America cut its ratings and price targets on several homebuilders and building products companies as the firm is bracing for the "inevitable" coronavirus impact on the U.S. housing market.
The firm on Thursday downgraded Lennar Corp. and NVR Inc. to neutral from buy and cut Toll Brothers Inc. and Foundation Building Materials Inc. to underperform from neutral and buy, respectively. KB Home was raised to buy from neutral as BofA sees "substantial first-time buyer offerings" providing "some degree of resiliency" compared to the overall market.
"We continue to view the set-up for homebuilder stocks as positive, given strong demand, improving affordability and relatively benign construction input costs," analysts led by John Lovallo said in a note. "However, we believe overall demand is likely to at least pause given COVID-19 uncertainty and there is potential carry-on effect for labor availability."
The firm sees recreational vehicles likely being in the toughest spot, "given the 100% discretionary nature of RV purchases," among other factors. BofA has an underperform rating on Camping World Holdings Inc., Thor Industries Inc. and Patrick Industries Inc.
The downgrades stand to add pressure on homebuilding stocks as coronavirus fears that have rattled the broader market overshadow benefits from a low-rate environment. Toll Brothers shares plunged in late February after reporting disappointing results and implying the virus was behind delays from Chinese buyers. The S&P Supercomposite Homebuilding Index had fallen 12% this year through Wednesday's close, narrowing the gap with the S&P 500, which is down 15%.