Earnings season is underway. One bright spot: homebuilders.
Builders have been on a winning streak thanks to limited existing-home housing supplies and lower inflation. Goldman Sachs strategists, led by Susan Maklari, said recently that investors are paying close attention to three homebuilders.
First, D.R. Horton, Inc. (DHI), which is set to release fiscal third quarter earnings before the opening bell on Thursday. Goldman analysts are expecting sales to reach $8.59 billion, higher than $8.2 billion from analysts polled by FactSet.
Why? That lack of available existing homes inventory. The caveat? Wall Street is worried about buyer appetite and will it impact margins.
The Goldman report comes as both Lennar Corporation (LEN) and KB Home (KBH) posted second quarter results that blew past Wall Street's expectations.
The better-than-expected results from both builders reflects the current environment despite mortgage rates hovering near 7%, and housing supply down 7% over the last year. Goldman Sachs analysts estimate DHI will reach 22,536 housing orders this quarter, higher than the 21,564 orders analysts estimated via FactSet.
“We look for these dynamics to be sustained through the second half, benefiting revenues as well as profitability, though the more recent move in rates and higher lumber prices could be partial offsets, the team at Goldman noted about all homebuilders.
Additionally, the firm anticipates the builder will allow new home deliveries to hit 21,161, up from analysts surveyed by FactSet estimate of 20,677 units. Meanwhile, earnings per share for the quarter is forecasted to come in at $3.13 from Goldman, while analysts on the street expect $2.78.
“That said, with the builders under our coverage up an average of 7% since June 14 versus a 2% rise in the S&P 500 over the same time, we believe much of the upside is already reflected in valuations,” Goldman’s team noted.
Next on the list: Meritage Homes Corporation (MTH.) The fifth largest homebuilder, plans to report second quarter earnings after the market closes on Thursday, July 27. Analysts at Goldman are expecting sales to reach $1.4 billion, higher than $1.3 billion from the FactSet analysts.
What Wall Street wants to know: did MTH reach its target goals for the quarter?
For MTH, analysts estimate the homebuilder will reach 3,974 housing orders this quarter, higher from the 3,645 orders analysts estimated per FactSet. The firm also anticipates the builder will have new home deliveries hit 3,216, up from the analyst estimates of 3,038 units.
Meanwhile, the earnings per share for the quarter is forecasted to come in at $4.09 from Goldman, while analysts on the street expect $3.45.
Meanwhile, PulteGroup, Inc. (PHM), plans to release second quarter earnings on Tuesday July 25. The focus will be on demand. Analysts at Goldman are expecting sales to reach $4.16 billion, lower than $3.96 billion from the FactSet surveys.
Goldman analysts' take: “This comes as operating pressures continue to moderate with single-family starts 24% below their December 2020 peak, freeing up key inputs and labor. Given this, we look for builders to continue to outperform, with the larger publics gaining share over smaller private peers, as they leverage access to lower cost capital and necessary resources to maintain steady production.”
Questions remain on whether builders will be able to keep up the momentum. But Goldman estimates that Pultegroup will reach 7,573 housing orders this quarter, higher from the 7,085 orders estimated per FactSet.
The firm also anticipates the builder will have new home deliveries hit 7,484, up from the FactSet estimates of 7,267 units. Earnings per share for the quarter is forecasted to come in at $2.75 from Goldman, while analysts on the street expect $2.47.
For the group as a whole: Goldman believes that the returns on homebuilder earnings will be positive; the firm raised price targets by about 14%, while also increasing EPS forecasts across the group by 7% for 2023.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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