The housebuilder on Wednesday revealed that it expects record profits this year after it completed more homes and achieved higher average selling prices.
Following the trading update, ShoreCap put its recommendation under review.
“We had been a seller for an extended period and have seen the shares fall by almost one third since October last year,” the broker said.
“The share price had recently dropped below our bottom of the range fair value of 520p, hitting a low of 480p.”
ShoreCap, which has a target price of 510p on the stock, said it is not changing its fair value estimate or view on the housebuilding sector but believes it needs to be “pragmatic on recommendations”.
“Therefore, we feel it is right, for now at least, to step away from our 'sell' stance and raise to 'hold' purely on valuation grounds,” it said.
“We do not see the shares as being cheap but at still below our fair value they are no longer over-bought.”
On Barratt’s trading statement, ShoreCap said the update made some “positive noise” but it still sees “much tougher times ahead” than the housebuilders suggest. It expects a much-earlier peak in the company’s profits and across the sector than consensus forecasts suggest.
“We would not look to buy Barratt but the time for taking profits looks to have passed and investors running short positions perhaps should re-evaluate their position,” ShoreCap said.
“If there is a sustained rally in Barratt we would look to switch back our recommendation as we do not see any fundamental value here.”
Shares rose 1.5% to 517.8p in late-morning trading.