Homebuilder stocks struggle on new home sales report
Analysts anticipate firm rebound for building product stocks
“Longer-term, we believe the building products stocks also offer a number of additional advantages over the homebuilders that should allow them to extend their gains into 2014 and beyond,” said Barclays in a breakdown of the market.
“We believe that powerful free cash flow generation will allow the building product companies to pursue accretive acquisitions or return cash to shareholders in the form of share repurchases and dividends,” Barclays added.
During the downturn, the building products companies aggressively reduced fixed costs and this should drive high incremental margins of 20-50% through the recovery.
Lowe’s reported extremely strong second-quarter same-store sales growth of 9.6% this week. According to Barclays, increased repair and remodeling could be a leading indicator for rising existing-home sales and inventory, as consumers tend to remodel their kitchens and baths before they look to sell a home.