RBC cuts building product stocks on 2027 risks in Q3 preview

Investing.com -- RBC Capital Markets downgraded three building products stocks and lowered its estimates, saying a higher rate and inflationary backdrop leave the group facing greater headwinds in 2027 as third-quarter earnings approach.

Analyst Mike Dahl wrote that RBC "leans cautious" and expects near-term results to be mixed, with timing dynamics creating volatility. Despite weaker investor sentiment, he said consensus numbers "embed too much market recovery," and RBC has essentially removed organic volume growth from its models.

RBC now forecasts single-family housing starts down 5% in 2026 and 1% in 2027, with repair and remodel up 1% and flat. It sees new residential names as most at risk, while heavy non-residential strength and stable municipal demand should help certain stocks. It generally prefers distributors over manufacturers.

The broker downgraded Mohawk Industries to Underperform from Sector Perform and cut its target to $112 from $130. Dahl expects the fourth-quarter guide to disappoint, with earnings of $1.42 per share versus the Street’s $1.69. RBC’s 2027 estimate of $8.97 is well below the Street’s $10.06. Rising oil, diesel and natural gas costs require more pricing, which Dahl says will be hard to achieve amid weak flooring demand.

Builders FirstSource was downgraded to Sector Perform from Outperform, with its target lowered to $62 from $88. Dahl sees third-quarter results as in line but warns of risk in the fourth quarter and 2027, expecting 2027 EBITDA of $1.06 billion versus the Street’s $1.21 billion. The analyst expects leverage, now about 3.6 times, to rise above 4 times by year-end, likely restricting near-term capital deployment.

"While we acknowledge other BLDR idiosyncratic factors (i.e., considerable scale, digital initiatives, ongoing cost-outs, best in class mgmt.) could provide partial offsets, we see the near-term BLDR bull case as overly dependent on a SFNC recovery that we no longer expect," Dahl wrote.

Owens Corning was also cut to Sector Perform from Outperform, with its target lowered to $127 from $172. Dahl sees potential for a better-than-feared third quarter, but flagged notable risks to the fourth quarter and 2027.

RBC kept Whirlpool at Underperform with a $22 target, and its 2026 and 2027 EPS estimates of $0.58 and $1.15 sit far below the Street’s $1.83 and $3.53. It cited sluggish industry demand and potential share risks.

Ferguson is RBC’s favorite long idea, seen as best positioned for near-term resilience thanks to momentum in mega projects and HVAC. The broker also stays Outperform on Fortune Brands, Core & Main, SiteOne and QXO, though it views QXO more as a long-term call amid likely near-term headwinds.

Original Article

You May Also Be Interested In

• S&P lowers Lamb Weston rating to ’BB’ with stable outlook amid elevated debt
• Datadog stock rises on analyst upgrade, AI demand
• Oppenheimer Lists Top Industrial Efficiency Stocks Into Q3 Earnings