PulteGroup stock drifts down after BofA cuts to Neutral on weaker home demand

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PulteGroup (NYSE:PHM) shares are sliding 2.3% in early Wednesday morning trading after Bank of America analyst Rafe Jadrosich downgraded the homebuilder to Neutral from Buy, citing a slowdown in homebuying demand that could persist through the second half of 2022.

Jadrosich’s downbeat coverage comes a day after PulteGroup’s (PHM) Q2 earnings reflected slower home demand in the face soaring mortgage rates and home prices.

The analyst pointed out two additional reasons for his downwardly revised rating: “(2) relative underperformance of built-to-order homes (70% of PHM inventory) vs. spec as buyers shift preference to quick move-in homes, and (3) less compelling valuation following the ~18% rebound in shares since mid-June,” he wrote in a note to clients.

Amid a rising interest rate environment, “our strategy is to start specs consistent with buyer demand,” CEO and President Ryan Marshall said during his company’s Q2 earnings call. “As market conditions evolve, we are prepared to continue starting specs, reemphasize build-to-order homes or slow starts entirely as demand conditions warrant,” he added.

In contrast to Jadrosich’s Neutral rating, SA’s Quant system as well as the average Wall Street Analyst view PulteGroup (PHM) stock as a Buy.

SA contributor Lincoln C. Wood believes PulteGroup is a Strong Buy as a tight home inventory “presents an opportunity for growth.”