On Wednesday, Benchmark analysts provided an update on the housing sector for fiscal year 2025, highlighting their top pick within the industry. Analysts at Benchmark forecast a continuation of the trends that started to take shape in late 2023, as the market adjusts to a prolonged period of high interest rates.
This environment has benefited new single-family home construction, while the multi-family segment is currently absorbing a surplus of new inventory. According to InvestingPro data, leading companies in this sector are showing resilience, with many maintaining strong financial health scores despite market volatility.
The repair and remodel (R&R) market, traditionally driven by renovations associated with buying and selling homes, has significantly slowed. Instead, the current R&R activities are primarily sustained by homeowners making necessary repairs or choosing to upgrade their homes while staying put.
Benchmark analysts expect a low to mid-single digit growth rate for new single-family home construction and a stable environment for multi-family and R&R sectors, barring any changes in interest rates.
Recent weeks have seen the market come to terms with these projections, leading to a decrease in valuation that falls below long-term averages. Despite the current sentiment not reaching its lowest point, analysts believe that the present prices offer a more reasonable entry point compared to a few months prior. Benchmark maintains a long-term confidence in the housing sector.
In the near term, Benchmark favors investment in secular themes such as insulation, with companies like BLD and IBP, and roofing, with BECN being a notable mention. They also recommend focusing on outdoor living with companies like TREX, AZEK, and UFPI.
HLMN is singled out as Benchmark's top pick, while NX is recognized for its potential catalyst following a recent merger and an upcoming Analyst Day. BLDR is identified as a pure play on new single-family construction that has seen its value decline alongside the broader market.
For IBP specifically, InvestingPro analysis reveals a "GREAT" financial health score, with a solid current ratio of 2.99 and a dividend yield of 1.73%. Investors seeking deeper insights into these construction sector companies can access comprehensive Pro Research Reports, available exclusively on InvestingPro, covering over 1,400 US stocks with detailed financial analysis and expert recommendations.
In other recent news, Installed Building Products (NYSE:IBP) has made significant strides in its operations. The company recently acquired Capital Insulation, LLC and CBS & Mirror, LLC, both based in Houston, Texas. This move is expected to enhance IBP's existing operations in the Houston area, adding over $12 million of annual revenue.
The acquisition aligns with IBP's growth strategy, which has already added over $100 million of annual revenue through acquisitions in 2024.
On the financial front, IBP reported a record net revenue of $761 million in Q3 2024, an 8% increase from the previous year. This growth was attributed to organic expansion across all end markets, with significant contributions from national production builders and robust multifamily sales. The company's adjusted EBITDA reached a new high of $132 million, with adjusted net income reported at $80 million.
However, Seaport Global Securities has downgraded IBP's stock from Buy to Neutral, citing expectations of a slowdown in housing starts. The firm anticipates growth from the largest public builders to be in the low to mid-single digits, with private builders projected to grow less. These recent developments reflect a combination of robust financial performance and a cautious market outlook.
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