Truist favors four homebuilding stocks, ranked by upside potential

Investing.com — Truist Securities recently initiated coverage of the U.S. homebuilding sector, giving four companies a buy rating and advising investors to start positioning now to capture the potential upside cycle in 2027, despite expectations that 2026 will be challenging.

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The firm has given buy ratings to PulteGroup, Taylor Morrison, Toll Brothers, and Meritage Homes. Truist expects revenues in 2026 to mostly decline, with a slight decrease in sales units and potential pressure on average selling prices. However, the company believes 2026 will be the bottom year for profit margins and demand, which could lead to significant earnings growth in 2027. Truist notes that homebuilders typically act early at the first signs of a new cycle.

1. PulteGroup (PHM)

Truist has set a target price of $170 for PHM, calling it the most favored large-cap stock in the sector. The company forecasts 2027 earnings per share of $12.21, above the market expectation of $11.31. Truist expects PHM to have the opportunity to reduce the incentive usage rate from about 10% at the end of 2025 to the mid-to-high single digits over the next two years. The firm emphasizes that PHM has approximately 8 years of rich land reserves, compared to the sector average of 6.5 years, making capital allocation more efficient and potentially keeping PHM ahead in share repurchases within the sector. Truist believes these factors support PHM as a leader in return on equity.

PulteGroup recently announced the completion of an $800 million senior notes offering and declared a quarterly cash dividend of $0.26 per share. The company also appointed Kristin Gannon to its board.

2. Taylor Morrison (TMHC)

Truist has a target price of $85, calling TMHC the most favored small- to mid-cap stock in the sector. The company’s forecast for 2027 return on equity is 10.0%, compared to the market expectation of 9.4%, indicating it should trade at about 1.3 times its book value, versus the current multiple of 1.1. Truist points out that new home sales priced above $800,000 outperformed those below $800,000 by over 100 basis points in 2025. The company believes that, given the current trading multiple and its earnings potential, TMHC is severely undervalued.

Taylor Morrison reported Q4 earnings that exceeded analyst expectations. Additionally, Bank of America Securities raised its target price for the company from $70 to $72 while maintaining a neutral rating.

3. Toll Brothers (TOL)

Truist has set a target price of $190 for TOL. The firm believes TOL is uniquely positioned to benefit from a resilient luxury housing market in 2027 and to be somewhat insulated from affordability issues faced by lower-end builders. Truist notes that competition at the luxury price point is very limited nationwide.

In other news, Bank of America Securities raised Toll Brothers’ target price from $160 to $180, citing stronger-than-expected first-quarter earnings. The company also revised its credit agreement, increasing its revolving credit facility to $2.375 billion and extending the maturity to 2031.

4. Meritage Homes (MTH)

Truist has a target price of $90 for MTH. Analysts are optimistic about the company’s differentiated 100% move-in-ready strategy and expect that, in the long term, a limited SKU count will provide solid sales leverage. Truist considers MTH the only high-volume, low-average-price builder trading at a significant discount relative to its expected price-to-book multiple.

Meritage Homes reported mixed results for Q4 2025, with EPS of $1.67 exceeding expectations, but revenue of $1.4 billion falling short.

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