RBC turns cautious on building products sector: fading expectations of housing recovery, multiple stocks downgraded
RBC Capital Markets has adopted a more cautious stance on the building products sector ahead of the third quarter earnings season, lowering earnings forecasts and downgrading several stocks. This is due to high interest rates, inflation, and weak housing demand, which may persist until 2027.
According to reports from Zhihui Finance APP, RBC Capital Markets has turned more cautious on the building products sector ahead of Q3 earnings season, lowering profit forecasts and downgrading several stocks due to high interest rates, inflation, and weak housing demand that may persist until 2027.
Chief analyst Mike Dahl stated that as expectations for a housing recovery continue to cool, RBC has effectively removed organic sales growth from its models. The firm now expects U.S. single-family housing starts to fall about 5% in 2026, with another 1% drop in 2027; repair and remodeling spending is expected to grow only 1% this year and remain roughly flat next year.
These revisions are highly significant for investors, as Wall Street forecasts may still assume a stronger housing market rebound than what RBC considers likely. The firm cut its average 2027 EPS forecast for building products manufacturers by about 10% and lowered its EBITDA forecast by 7%. RBC sees manufacturers as particularly vulnerable to rising raw material costs and limited pricing power and, in the current inflationary environment, prefers distributors overall.
RBC downgraded Builders FirstSource (BLDR.US) from “Outperform” to “Sector Perform,” slashing the target price from $88 to $62. The firm expects its 2027 EBITDA to be $1.06 billion, down 16% from previous estimates and also below the market consensus of $1.21 billion. RBC cited worsening housing starts, intensifying competition, and pressure on gross margins. High leverage may also limit share buybacks and other capital allocation activities.
Owens Corning (OC.US) was likewise downgraded from “Outperform” to “Sector Perform,” with the target price cut from $172 to $127. RBC believes that the roofing business may perform better than feared in Q3, but weakening demand, distributor destocking, and rising oil and asphalt costs will drag down Q4 and 2027 earnings. Its 2027 EPS estimate was cut from $12.20 to $10.16, while the market consensus is $11.81.
RBC is even more bearish on Mohawk Industries (MHK.US), downgrading the flooring manufacturer from “Sector Perform” to “Underperform,” with the target price lowered from $130 to $112. RBC expects weak flooring demand to clash with rising oil, diesel, and natural gas costs. Its Q4 EPS is forecast at $1.42, well below the $1.69 market consensus; for 2027, the forecast is $8.97 versus Wall Street’s $10.06 estimate.
RBC is most bearish on Whirlpool (WHR.US), maintaining its “Underperform” rating and cutting the target price from $32 to $22. Its 2027 EPS forecast is just $1.15, compared to market consensus of $3.53. The firm cited weak appliance demand, competitive pricing, potential Canadian tariff costs, and possible higher steel costs after contract repricing.
There are still preferred picks. Ferguson Enterprises (FERG.US) is RBC’s top long recommendation, rated “Outperform” with a $286 price target, reflecting strong performance in large projects and HVAC business. RBC also maintains “Outperform” ratings on Fortune Brands Innovations (FBIN.US), Core & Main (CNM.US), SiteOne Landscape Supply (SITE.US), and QXO (QXO.US), but cautions that QXO may face near-term challenges in its roofing business and macroeconomic headwinds.
The broader message from Dahl’s report is that the industry’s anticipated recovery in 2027 is being further delayed. RBC’s revised building forecasts put 2027 single-family housing starts at about 890,000 units, below the previous assumption of a 5% increase; repair and remodeling spending is now projected to be essentially flat, rather than the previously expected 3.1% growth. For investors, as the sector waits for a housing demand recovery, company-specific pricing power, exposure to a stronger non-residential market, and the ability to protect profit margins are becoming ever more important.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
BUZZ - PepsiCo's stock rises as the company predicts annual revenue will reach the upper end of its guidance range
October 8 - * Snack and carbonated beverage giant PepsiCo (PEP.O) saw its shares rise by 2% in pre-market trading, quoted at $125.32. ** The beverage manufacturer stated it expects full-year revenue to reach the upper end of the previously forecasted range of 4% to 6%. ** It now anticipates annual core earnings per share growth of 1% to 2% at constant currency, compared to the previously forecasted lower end of the 4% to 6% range. ** Third-quarter net revenue came in at $25.27 billions, surpassing analyst expectations of $24.96 billions compiled by LSEG. ** Core earnings per share grew 2% in the third quarter to $2.34. ** CEO Ramon Laguarta stated: "We are currently formulating further structural cost-saving measures, which will be implemented in the coming months." ** As of the previous session close, the stock was down 13.8% year-to-date. (For the convenience of non-English speakers, Reuters provides automated translations of its reports into several other languages. Since automated translations may contain errors or lack necessary contextual information, Reuters does not guarantee the accuracy of these automated text versions. They are provided solely for reader convenience. Reuters assumes no responsibility for any damage or loss arising from the use of automated translations.)
Updated version 1 - PepsiCo will cut costs as weak North American business weighs on annual core profit outlook
The third paragraph adds comments from the CEO, and the fourth paragraph provides information on stock price trends. Reuters, October 8 - PepsiCo (PEP.O) announced on Thursday that, due to weak snack and beverage demand in North America and rising input costs, it has lowered its annual core profit forecast and will further advance cost-cutting measures. Consumer goods manufacturers such as PepsiCo, General Mills (GIS.N), McCormick (MKC.N), and Conagra Brands (CAG.N) are facing a challenging operating environment: soaring raw material costs are squeezing profit margins, and rising gasoline prices are prompting consumers to be cautious with their spending, thereby dampening demand. “We are developing additional structural cost reduction measures, which will be implemented in the coming months to support investments aimed at accelerating organic revenue growth and mitigating the impact of input cost inflation,” CEO Ramon Laguarta stated in the announcement. The company’s shares rose about 1% in pre-market trading. The company expects that, after adjusting for currency fluctuations, fiscal 2026 core earnings per share will rise between 1% and 2%, lowered from the previous forecast of a 4% to 6% increase at the low end. In addition, the company expects annual organic revenue to grow by roughly 3%, compared to its previous forecast range of 2% to 4%. (For the convenience of non-English speakers, Reuters has automatically translated this report into several other languages. Automated translations may contain errors or may lack necessary context, and Reuters does not guarantee the accuracy of automated translation texts, which are provided for convenience only. Reuters accepts no liability for any damage or loss arising from the use of the automated translation feature.)
BUZZ-IonQ shares surged as the company has advanced to the final stage of the U.S. Quantum Testbed Program.
On October 8, shares of quantum computing company IonQ (ticker: IONQ.N) rose 1.52% in pre-market trading to $41.97. The company announced that it has entered the third phase of the DARPA (Defense Advanced Research Projects Agency) quantum benchmarking program. This move signals recognition of IonQ's quantum computing technology. DARPA is a U.S. government agency responsible for funding and promoting the development of advanced defense technologies. Its QBI program aims to test which quantum computers will ultimately have the performance and reliability required for real-world applications. The third phase is the final testing and validation stage, set to last until 2029, with a potential contract value of up to $300 million. As of the previous trading day’s close, IonQ's stock was down 7.87% year-to-date.
