These home-builder stocks look cheap after Berkshire's 'vote of confidence' in the sector

By Philip van Doorn and Tomi Kilgore

After two years of underperformance, most home builders remain profitable and many stocks are trading at relatively low valuations

A downcycle has continued for home builders this year, but Berkshire Hathaway has shown its enthusiasm for the industry with a cash deal to buy Taylor Morrison for $8.5 billion.

Just being cheap isn't enough to attract hot money - there also has to be some belief that Wall Street vultures are circling. But now there's reason to think that, after two years of underperformance, more longer-term investors will be looking for bargains in the home-builder sector.

That reason is an announcement by an investor known for finding diamonds in the rough - famed value investor Berkshire Hathaway (BRK.A) (BRK.B) of Warren Buffett fame, which said it was spending $8.5 billion to buy Taylor Morrison Home (TMHC). Some analysts, like UBS's John Lovallo, see the deal as the "vote of confidence" needed to attract investor interest in beaten-down home builders.

With that in mind, the sector is littered with other stocks trading at relatively low valuations, and with expected sales performances that are much better than that of Taylor Morrison. (See below for a MarketWatch valuation screen of home builders.)

To be sure, there are a lot of good reasons for the home-builder sector to have underperformed the S&P 500 index SPX at the same pace it did at the height of the COVID panic in early 2020, as it has been at the center of the current housing-affordability crisis.

Home prices have fallen since the post-COVID peak reached in late 2022, but not by enough to offset higher mortgage rates, a stagnant job market and a U.S. consumer that has struggled to deal with stubbornly high inflation.

The latest data show that sales of new homes remain about at levels seen four years ago, even as the median sales price of houses sold has dropped by roughly 8% over the same time.

But some upbeat earnings reports over the past couple months and data showing home construction has picked up have provided investors with a reason to take notice. Berkshire's all-cash announcement over the weekend to buy Taylor Morrison came less than a month after Japan-based Sumitomo Forestry's (JP:1911) $4.5 billion all-cash deal to buy Tri Pointe Homes closed.

Also in February, Beazer Homes USA (BZH) said it rejected an unsolicited buyout bid from Dream Finders Homes (DFH), because it "significantly undervalued the company." And in February, Stanley Martin Homes, owned by Japan's Daiwa House (JP:1925) (DWAHY), struck a deal to buy United Homes Group for $221 million.

UBS's Lovallo believes Berkshire's proposed takeover of Taylor Morrison is "a strong vote of confidence" in the mid- to long-term outlook for the home-building industry - especially given his estimate that the housing market is "underbuilt" by roughly 7 million units, builder input-cost inflation has started to moderate and valuations in the sector remain "undemanding."

"We believe these factors are likely to continue driving investment into the home-building industry over time from sources of long-term oriented capital," Lovallo wrote in a note to clients.

Looking cheap

There are 17 home builders held by the iShares U.S. Home Construction ETF ITB, out of a total of 44 stocks held by this exchange-traded fund. ITF's own shares have fallen 3.4% in 2026, while the S&P 500 has rallied 11.2%.

Here are all 17 stocks sorted by forward price-to-earnings ratio. These ratios are based on Friday's closing prices and consensus 12-month earnings-per-share estimates among analysts polled by LSEG. There is no forward P/E ratio available for Hovnanian Enterprises (HOV), because the only analyst polled by LSEG that covers the company expects it to post net losses totaling $1.88 a share over the next 12 months - so Hovnanian is at the bottom of the list.

The table also includes calendar-year revenue (in millions) and EPS for 2025, and revenue estimates and projected revenue growth rates for 2026. For Hovnanian, the 2025 revenue and EPS figures are for the company's fiscal year ended on Oct. 31.

 
Company                   Forward P/E  2025 revenue  Est. 2026 revenue  Projected 2026 revenue growth rate  2025 EPS  Est. 2026 EPS 
M/I Homes                         9.3        $4,418             $4,143                               -6.2%    $14.71         $12.65 
Taylor Morrison                  10.0        $7,819             $6,518                              -16.6%     $7.76          $5.25 
Toll Brothers                    10.2       $10,925            $10,719                               -1.9%    $13.85         $13.01 
Dream Finders Homes              10.5        $4,323             $4,429                                2.4%     $2.15          $1.34 
Green Brick Partners             11.0        $2,098             $1,918                               -8.6%     $7.07          $5.83 
PulteGroup                       11.1       $17,312            $16,432                               -5.1%    $11.12         $10.03 
Meritage Homes                   11.4        $5,858             $5,499                               -6.1%     $6.32          $5.03 
KB Home                          11.8        $6,131             $5,124                              -16.4%     $5.83          $3.42 
Century Communities              12.1        $4,118             $3,684                              -10.5%     $4.86          $3.80 
D.R. Horton                      12.6       $33,524            $34,397                                2.6%    $11.01         $10.97 
Lennar                           13.0       $33,850            $32,905                               -2.8%     $7.65          $6.30 
LGI Homes                        15.0        $1,706             $1,771                                3.8%     $3.13          $2.62 
NVR                              15.5       $10,094             $9,423                               -6.6%   $437.24        $364.64 
Champion Homes                   20.6        $2,636             $2,721                                3.2%     $3.75          $3.46 
Cavco Industries                 21.3        $2,203             $2,325                                5.5%    $23.02         $24.31 
Beazer Homes USA                 32.8        $2,266             $2,181                               -3.7%     $0.30         -$0.16 
Hovnanian Enterprises             N/A        $2,979             $2,820                               -5.3%     $7.43            N/A 
                                                                                                                       Source: LSEG 

Among the 17 home builders, 12 are expected to show declining revenue this year, and all except for Cavco Industries (CVCO) are expected to report declining earnings. Then again, all 17 are expected to be profitable this year.

Taylor Morrison had the second-lowest forward P/E multiple of 10 as of Friday's close. And it also had the largest projected 2026 sales decline on the list, according to the consensus estimates. It was also heavily favored by analysts working for brokerage and research firms polled by LSEG.

That forward P/E of 10 compares with a weighted forward P/E of 20.9 for the S&P 500, according to LSEG.

Leaving the group in the same order, here is a summary of analysts' ratings and price targets as of the close on Friday (before the Berkshire deal for Taylor Morrison was announced on Sunday).

 
Company                   May 29 share price  Consensus price target as of May 29  Implied 12-month upside potential as of May 29  # of analysts covering  Share of "buy" ratings  Share of "sell" ratings 
M/I Homes                            $131.62                              $160.00                                             22%                       3                     67%                       0% 
Taylor Morrison                       $58.50                               $72.16                                             23%                      10                     70%                      20% 
Toll Brothers                        $138.54                              $164.90                                             19%                      20                     65%                       5% 
Dream Finders Homes                   $15.46                               $21.00                                             36%                       3                      0%                       0% 
Green Brick Partners                  $67.26                               $67.00                                              0%                       4                      0%                       0% 
PulteGroup                           $118.18                              $138.75                                             17%                      19                     53%                      11% 
Meritage Homes                        $65.24                               $76.78                                             18%                      12                     42%                       0% 
KB Home                               $48.86                               $55.94                                             14%                      18                     17%                      22% 
Century Communities                   $52.82                               $78.33                                             48%                       4                     50%                      25% 
D.R. Horton                          $147.09                              $167.39                                             14%                      23                     26%                       9% 
Lennar                                $89.78                               $90.60                                              1%                      20                      5%                      40% 

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06-01-26 1455ET