Investing.com — J.P. Morgan on Monday cut its 2027 earnings estimates for UK housebuilders by an average of 20%, downgrading and to “underweight” from “neutral” rating, while retaining as its top pick in the sector.
The broker now expects average margin compression of approximately 100 basis points year-on-year in 2027, reversing its prior forecast of roughly 40 basis points of expansion, driven by rising mortgage rates and accelerating build cost inflation.
Revenue estimates were trimmed by 3% on average, excluding Crest Nicholson, reflecting weaker completions and softer average selling price growth.
J.P. Morgan sits 9% below Bloomberg consensus for 2027 earnings across the sector on average, with the gap widest at Taylor Wimpey and Vistry, where its estimates are 15% and 33% below street expectations, respectively.
On Taylor Wimpey, the bank flagged that consensus assumes margin expansion of 40 basis points in 2027 versus 2026, against J.P. Morgan’s own forecast of a 103 basis point contraction.
The broker attributed the divergence to pricing pressure concentrated in southern England, London, the South East, and the South West have recorded negative year-on-year price trends for three, four, and seven consecutive months, respectively, per Rightmove and ONS data cited in the note.
The analysts also questioned the sustainability of Taylor Wimpey’s shareholder distribution policy, which targets 7.5% of net assets annually, noting that operating cash flow has not covered the payout since 2022.
J.P. Morgan estimates the implied payout represents 299%, 197%, and 216% of operating cash flow in 2026, 2027, and 2028, respectively, and projects the company will enter a net financial debt position of £11 million in 2027.
For Vistry, J.P. Morgan said its 2026 estimate sits 13% below the midpoint of company guidance and 6% below consensus, citing underestimated incentive costs as the group seeks to reduce finished inventory.
Into 2027, the broker said Vistry’s partnerships model leaves it particularly exposed to build-cost inflation, as revenues are locked in through fixed-price contracts agreed before delivery.
J.P. Morgan also warned that higher interest rates could weigh on demand from the private rented sector, one of Vistry’s key sales channels.
The analysts cut its 2027 earnings estimate for Persimmon by 10%, a smaller reduction than the sector average.
It said the company’s lower average selling prices, stronger exposure to northern England and vertically integrated business model should help cushion the impact of broader industry headwinds.
“Persimmon’s mid-term objectives are to achieve 20% operating margins and ROCE,” the note said.
Price targets were cut across the sector by an average of 31%. Taylor Wimpey’s target was reduced to 70p from 100p, implying 6% downside to the June 12 closing price.
Vistry’s target was cut to 210p from 430p, implying 13% downside. Persimmon’s target was lowered to 1,430p from 1,800p, still implying 37% upside.