Housing

BofA/Merrill Lynch Goes Positive on Housing (TOL, DHI, AWI, OC, MAS, BKD, ESC)

Bank of America/Merrill Lynch is going positive on the housing sector. This call is in builders and in building products, but they also made a positive call on two senior housing plays. It should be noted that this was newly reinstated coverage of homebuilding by the firm as an adjunct to its existing coverage in the wood and forest products sector.

Bank of America said:

We expect that there will be some natural synergies across the three groups given how much all three are driven by housing, and to be able to provide investors some different, value added insights into the group over time as a result.

We would note that housing stocks are way up from the lows of 2011, so some of these aggressive targets are on top of serious gains already seen. Toll Brothers Inc. (NYSE: TOL) and D.R. Horton Inc. (NYSE: DHI) were both initiated with Buy ratings. Toll was given a $42.00 target, versus the consensus target price of $35.95 but less than the street high target of $49.00. D.R. Horton was given a $25.00 target, which is above the consensus price target of $21.36 but below the street high target of $26.

The building products initiations were strong on the Buy rating targets, but the call was not positive for all. Armstrong World Industries Inc. (NYSE: AWI) was started with a Neutral rating. Both Masco Corp. (NYSE: MAS) and Owens Corning (NYSE: OC) were started with Buy ratings. Masco’s target price is $22.00, and that is a street high above the consensus $15.56 price target. Owens Corning’s price target is $48, a new street high versus a consensus target price of $38.50.

Brookdale Senior Living Inc. (NYSE: BKD) was also raised to Buy as its top single pick, based on a better fundamental outlook. Emeritus Corp. (NYSE: ESC) was also noted as Buy in the senior housing sector.

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