Truist recommends four residential construction stocks, ranked by upside potential

Investing.com – Truist Securities recently initiated coverage of the U.S. residential construction sector, giving buy ratings to four companies and advising investors to start positioning for a potential upcycle in 2027, despite expecting challenges in 2026.

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The company has given buy ratings to PulteGroup, Taylor Morrison, Toll Brothers, and Meritage Homes. Truist expects revenues in 2026 to mostly decline, with sales units slightly decreasing and average prices under pressure. However, the firm believes 2026 will be the trough year for profit margins and demand, potentially leading to significant earnings growth in 2027. Truist notes that homebuilders often act early when early signs of a new cycle appear.

1. PulteGroup (PHM)

Truist set a target price of $170 for PHM, calling it the most favored large-cap stock in the sector. The firm forecasts 2027 earnings per share of $12.21, above the market expectation of $11.31. Truist expects PHM to have the opportunity to reduce incentive usage from about 10% at the end of 2025 to mid-to-high single digits over the next two years. The company emphasizes that PHM has about 8 years of land supply, compared to the sector average of 6.5 years, making capital allocation more efficient and potentially allowing PHM to remain a leader in share repurchases. 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 set a target price of $85, ranking TMHC as its top pick among small- and mid-cap stocks. The firm’s forecast for 2027 return on equity is 10.0%, compared to the market expectation of 9.4%, indicating a price-to-book ratio of about 1.3x, up from the current 1.1x. Truist pointed out that in 2025, new home sales over $800,000 performed over 100 basis points better than those below $800,000. The company believes that, given the current trading multiples and its return potential, TMHC is severely undervalued.

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

3. Toll Brothers (TOL)

Truist set a target price of $190 for TOL. The firm believes TOL will uniquely benefit in 2027 from a resilient luxury housing market and will 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 Q1 earnings. The firm also revised its credit agreement, increasing the revolving credit facility to $2.375 billion and extending the maturity to 2031.

4. Meritage Homes (MTH)

Truist set 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 generate significant sales leverage. Truist considers MTH the only builder trading at a notable discount with high sales volume and low average prices relative to its expected price-to-book multiple.

Meritage Homes reported mixed Q4 2025 results, with EPS of $1.67 beating analyst estimates, but revenue of $1.4 billion falling short.

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