Friday - Seaport Global Securities has downgraded shares of Installed Building Products (NYSE:IBP) from Buy to Neutral. The shift in rating comes amidst expectations of a moderation in housing starts in the first half of 2025.
The firm anticipates growth from the largest public builders to be in the low to mid-single digits, with private builders projected to grow even less. This outlook is set against a backdrop of increasing new home supply, which is currently 30% above the long-term average according to Census data.
The analyst from Seaport Global Securities noted that while the installer/distributor model of companies like Installed Building Products is typically well-suited to capitalize on inflationary conditions, the latest data suggests a more uncertain future for positive unit growth in the sector.
Despite the potential for the stocks to have already factored in some of the analyst's concerns, as indicated by their performance relative to the S&P, the decision to downgrade reflects a cautious stance in light of the expectation for slower starts.
Installed Building Products, a company that provides installation services for the building industry, has been recognized for its ability to maintain positive operating leverage on labor and material inputs. However, the recent data has introduced a degree of uncertainty that has prompted Seaport Global Securities to adopt a more conservative outlook.
The analyst's comments reflect a broader concern over the housing market's trajectory, which is now expected to grow at a more subdued pace than previously estimated. This reassessment is based on a combination of factors including the rise in new home supply and the anticipated performance of both public and private builders.
Seaport Global Securities' decision to move to a neutral stance on Installed Building Products before the fundamental outlook materializes is indicative of their rising conviction in a slower start to housing construction. This move is intended to align the firm's rating with the evolving market conditions and data.
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