Shares in Persimmon PLC have jumped 1.7% after Morgan Stanley (NYSE:MS) double-upgraded the housebuilder to ‘overweight ‘ from ‘underweight.’
The investment bank has also raised price targets for Taylor Wimpey PLC (LSE:TW.), Berkeley Group Holdings PLC and Barratt Developments PLC.
The moves came in a note on the housebuilding sector in which the bank said the “bear case (disorderly housing market correction) is no longer part of the debate.”
Morgan Stanley (NYSE:MS) said its “upside scenarios look to frame a plausible near-term upside surprise outcome.”
But they “do not reflect a Blue Sky scenario where volumes quickly recover to pre Covid levels.”
“Persimmon's niche is affordable homes on a UK-wide basis, and our underweight thesis was partly based on rising affordability risks,” the bank said.
But as mortgage rates fall, and affordability improves, “we think the business presents the best leverage to a volume recovery of the stocks under our coverage.”
“Persimmon has most to play for under a near-term upside scenario.”
“The stock benefits from highest operating leverage (volumes down most in 2023 YoY of the 4 stocks under coverage) and largest potential gross margin recovery based on the gross margin embedded in the land bank.”
“Further, the stock is overexposed to the first time buyer, hard hit in 2023,” it pointed out.
Morgan Stanley raised its price target for Persimmon to 1,685p from 1,131p, for Taylor Wimpey to 145p from 115p, Berkeley to 4,516p from 3,920p and for Barratt to 576p from 483p.