Taylor Wimpey PLC upgraded, Barratt Developments PLC downgraded as Jefferies

PLC () has been upgraded to ‘buy’ from ‘hold’ by analysts at Jefferies, who reassessed their view of several housebuilding firms amid what the broker was the “upside potential of forecasts” across the sector amid growing confidence in the “resilience of housing demand”.

In a note on Monday, the broker also raised its target price for Taylor Wimpey to 203p from 156p, saying that the company’s upside potential to earnings (EBIT) forecasts “appears to be some of the most pronounced in the sector” as land purchases funded by the company’s rights issue last year offered “a pathway of volumes towards group capacity and still meaningful upside to previous/land bank margin levels”.

READ: Taylor Wimpey says outlook for current year buoyed by strong orders

“Execution risk remains key and confidence among investors will need to be regained. But with growing evidence of the robust market and upgrades at peers, the tide of improving sentiment we believe will once again capture [Taylor Wimpey]”, Jefferies said.

However, the broker went on to say that peer PLC (), which had its price target raised to 3,349p from 3,213p and ‘buy’ rating maintained, remained their ‘top pick’ in the sector.

Jefferies said Persimmon’s near term build rates suggested “upside to [2021] completions, significant further upside in the later years towards capacity, and cost savings and the pull-through from the higher margin land bank supporting sector leading profitability and [return on capital employed]”, and as a result, they expected the stock will see “continued upward momentum”.

Meanwhile, PLC () was downgraded to ‘hold’ from ‘buy’ and its price target raised to 787p from 772p, with Jefferies saying that the company’s upside was “now more constrained” as it forecasts now reflected “the strong improvement in margin targeted by [management]”.

“While the stock remains inexpensive…after 20% sector outperformance over the past 2 years, we anticipate relative momentum to fade”, the broker said.

Another housebuilder to receive a target hike was (), which Jefferies raised to 3,560p from 3,288p and retained their ‘buy’ rating, saying the company’s near term leverage of its current structure to drive housing completions “may provide investors greater confidence in upside to forecasts” than its peer (), which was held at ‘buy’ with a target price of 666p.

Shares in upgraded Taylor Wimpey rose 1.4% to 163.8p in mid-morning trading, while downgrade target Barratt fell 1.2% to 701.8p.