Truist Securities recently initiated coverage of the U.S. homebuilding sector and issued Buy ratings on four companies, urging investors to consider positioning ahead of a potential industry recovery in 2027 even as the firm expects a challenging 2026.
In its initial coverage note, Truist outlined expectations that 2026 will likely see mostly lower revenues, modest unit declines and possible pressure on average selling prices. The brokerage described 2026 as a potential trough year for both margins and demand, with the prospect of meaningful earnings growth in 2027 if conditions improve. Truist also emphasized that homebuilders often lead the market by moving earlier than other participants at the first signs of a cyclical upturn.
Company-by-company breakdown
1. PulteGroup (PHM)
Truist named PulteGroup its preferred large-cap idea and set a $170 price target. The firm projects PulteGroup will report 2027 earnings per share of $12.21, ahead of the consensus Street estimate of $11.31. Truist expects PulteGroup to reduce incentive usage from roughly 10% at the end of 2025 to the mid- to high-single-digit range over the following two years, a change the analysts see as supportive of margin recovery.
Truist also pointed to PulteGroup's relatively deep lot inventory, about eight years versus a group average of 6.5 years, which the firm says permits more efficient capital deployment and should keep the company among the leading share repurchasers in the peer group. The firm framed these factors as supportive of PulteGroup's position as a return-on-equity leader within the coverage set.
Recent corporate developments cited by Truist include the completion of an $800 million senior notes offering, the declaration of a quarterly cash dividend of $0.26 per share, and the appointment of Kristin Gannon to the board of directors.
2. Taylor Morrison (TMHC)
Truist assigned Taylor Morrison an $85 price target and identified the company as its preferred small- and mid-cap idea. The firm's 2027 return-on-equity projection for Taylor Morrison stands at 10.0%, compared with a Street estimate of 9.4%. Truist calculated that this ROE outlook implies a valuation nearer 1.3 times price-to-book, versus Taylor Morrison's current trading multiple of about 1.1 times.
Truist highlighted that in 2025, sales of homes priced above $800,000 outperformed sales of homes under $800,000 by more than 100 basis points, a dynamic it sees as relevant to Taylor Morrison's positioning. The brokerage concluded that Taylor Morrison appears materially undervalued given the gap between its prospective ROE and current market multiple.
Taylor Morrison also reported fourth-quarter results that topped analyst expectations. Separately, BofA Securities raised its price target on Taylor Morrison to $72 from $70 while keeping a Neutral rating on the shares.
3. Toll Brothers (TOL)
Truist established a $190 price target on Toll Brothers, noting the company is well positioned to benefit from a resilient luxury housing market in 2027. The firm said Toll Brothers should be somewhat insulated from affordability pressures affecting lower-priced builders due to its concentration in higher price points, and that national competition for luxury product is limited.
Truist's commentary referenced recent actions by other analysts: BofA Securities raised its price target on Toll Brothers to $180 from $160, citing stronger-than-expected first-quarter earnings. Toll Brothers also amended its credit agreements, increasing its revolving credit facility to $2.375 billion and extending the maturity to 2031, items Truist noted in its coverage.
4. Meritage Homes (MTH)
Truist set a $90 price target on Meritage Homes and pointed to the company's differentiated strategy of operating with 100% spec inventory. The analysts expect Meritage to realize solid volume leverage over time due to a limited SKU count and described Meritage as the only high-volume, low-average-selling-price builder in the group that is trading at a notable discount to expected price-to-book multiples.
Meritage's most recent reported quarter was mixed, with fourth-quarter 2025 earnings per share of $1.67 that exceeded analyst estimates while revenue of $1.4 billion fell short of expectations.
Takeaway
Truist's initiation of coverage and Buy recommendations underscore a view that the homebuilding sector may hit a bottom in 2026 before a potential rebound in 2027. The firm provided company-specific drivers and price targets, while also flagging near-term headwinds to revenues and margins. Given Truist's observation that homebuilders tend to act early when a cycle turns, the brokerage recommends investors consider positioning ahead of a possible recovery.
Note: Truist's projections, price targets and company developments referenced above are those presented in the firm's coverage initiation.