Goldman Sachs upgrades this homebuilder stock, says it can outperform despite higher mortgage rates

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Goldman Sachs thinks a focus on home sale volume will lift D.R. Horton despite higher mortgage rates. The firm upgraded the construction stock to buy from neutral on a Monday note. Goldman did trim its target price to $131 from $132, which still equates to 26.3% upside from Friday’s $103.66 close. Analyst Susan Maklari said the culmination of tight inventory and buyer budgets and the speed of increases seen in mortgage rates should underpin a consumer preference for “quick move-in homes” and aid growth for the stock. “We look for D.R. Horton to leverage its operating acumen against this, driving upside to results,” Maklari said. “More specifically, we highlight the focus on the entry level, while maintaining a steady starts pace, allowing for share gains.” Mortgage rates have been rising sharply this year, as the Federal Reserve tightens monetary policy to fight inflation and the benchmark 10-year Treasury yield climbs to levels not seen in 16 years. Earlier this month, the popular 30-year fixed mortgage rate rise to more than 7.7% , reaching levels not seen since the end of 2000. Higher rates can make it more difficult for homebuyers to afford a home. Despite uncertainty tied to interest rates in the short-term, Maklari said the company could still increase closings by as much as 6% next year. “Looking out, we expect management will leverage improving cycle times and guidance for mid-single digit community count growth, and forecast home sale revenues up 5% in F2024, ~200bps ahead of the peer average,” she said. D.R. Horton has climbed more than 16% this year. DHI YTD mountain D.R. Horton stock. — CNBC’s Michael Bloom contributed to this report.