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Why BofA Downgrades Homebuilders Owens Corning, Dream Finders Homes

New home demand has deteriorated over the past few weeks due to the spike in mortgage rates, a sharp decline in consumer confidence and the weaker economic growth outlook, according to BofA Securities.

BofA On Owens Corning

Analyst Rafe Jadrosich downgraded the rating for Owens Corning NYSE:OC from Buy to Underperform, while reducing the price target from $119 to $80.

The company has "relatively high new construction exposure," estimated at more than a third of insulation and 20% of roofing, the analyst wrote in the note.

"In insulation, we now expect volume to decline ~10% YoY in 2023 and margins to compress. Composites could slow in 2023 with weaker industrial demand," he added. Jadrosich further mentioned there seems to be a limited upside to roofing, with "margins and sales likely near peak levels."

BofA On Dream Finders Homes

Analyst Jadrosich downgraded the rating for Dream Finders Homes Inc NASDAQ:DFH from Neutral to Underperform, while reducing the price target from $18 to $ $10.50.

The backdrop for Dream Finders Homes is more challenging than for other builders, the BofA analyst said in the note. He explained that the company has "high exposure to entry-level homebuyers," higher financial leverage than peers and "a significant portion of DFH's optioned land (estimate >40%) was contracted in the last year at potentially elevated land prices."

OC, DFH Price Action: Owens Corning's stock had declined by 2.03% to $74.64, while shares of Dream Finders Homes had declined by 9.48% to $10.70 at the time of publication Friday.

Photo: Kanjana Kawfang via Shutterstock

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