UPDATE: RBC Capital Downgrades TRI Pointe Homes (TPH) to Underperform

RBC Capital analyst Mike Dahl downgraded TRI Pointe Homes (NYSE: TPH) from Sector Perform to Underperform with a price target of $22.00.

The analyst comments "We downgrade TPH to Underperform in conjunction with our RBC Elements Big Data Behind Big Builders note, which shows a notable sequential decrease in breadth/magnitude of price increases (47% of plans raised price in June vs. 72% in May and 72% group avg.; avg. magnitude 1.4% vs. 1.9% in May and 2.1% group avg.). In our view, TPH has one of the more challenging near-term setups as order paces cool from extremely elevated levels while community count remains under pressure until FY’22. We remain below Street ests. on orders (RBCe -5% vs. Street +2% for FY’21). We estimate that TPH will see among the greatest order declines beginning in 2H’21—we estimate 3Q -33% vs. Street -23% and 4Q -16% vs. Street -4%—given timing of community ramps and absorption decel on top of tough comps. We see some potential for upside to our FY’21 GM% est. (RBCe 23.0% vs. Street 22.9% and 22.5–23.0% guide), though the decel in pricing trends over the last two months suggests this could be somewhat limited. On valuation, TPH is relatively inexpensive at 1.3x current TBV/1.1x YE’21 vs. peers at 1.7x/1.5x, but we expect the stock to lag given our below consensus ests., particularly as lower 2H orders pressure FY’22 EPS/ROTE ests. (RBCe FY’22 EPS $2.80 vs. Street $3.61; RBCe FY’22 ROTE 13% vs. 20% peer avg.). Our $22 PT is based on 1.0x our YE’22E TBV (1.1x YE’21)."

For an analyst ratings summary and ratings history on TRI Pointe Homes click here. For more ratings news on TRI Pointe Homes click here.

Shares of TRI Pointe Homes closed at $22.03 yesterday.

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