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.
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