Key insights
- Goldman Sachs downgraded Taylor Wimpey due to rising build costs and pricing deterioration, particularly in Southern England and London. Profit estimates were slashed, and operating margins are expected to compress more than peers. The valuation is considered unjustifiable, leading to a 'sell' rating and a reduced price target. While this is specific to a UK company, it highlights potential headwinds in the housing sector that could be relevant to US homebuilders.
Investing.com -- Goldman Sachs downgraded Taylor Wimpey Plc (LON:TW) to “sell” from “neutral” on Tuesday, cutting its 12-month price target 21% to 75 pence from 95 pence, implying 6% downside from the stock’s last close of 80 pence, as rising build costs and deteriorating pricing in Southern England and London erode earnings at a pace significantly worse than sector peers.
The brokerage slashed profit before tax estimates by 7% to 10% across the forecast period, placing Goldman Sachs 6% below Visible Alpha Consensus Data for FY26 and FY27 and 5% below for FY28. The new price target implies a price-to-earnings multiple of 13.2x on December 2026 estimates.
Goldman Sachs forecasts operating margins to compress 270 basis points in FY26, against 30 basis points for Bellway and 20 basis points for Persimmon.
Management had originally guided to £400 million of adjusted operating profit; Visible Alpha Consensus Data estimates now sit 18% below at £325 million.
Goldman Sachs models operating profit of £308 million against revenue of £3.77 billion in FY26, the note said.
Goldman Sachs said pricing in Taylor Wimpey’s order book weakened to 1% below list prices at the latest update from 0.5% below at fiscal 2025, implying a current run-rate of about 1.5% below.
The brokerage said nine London apartment developments, accounting for about 13% of work-in-progress and valued at £270 million as of the first half of 2025, are expected to unwind through 2029. Sales incentives were running above 6%, compared with 4% to 5% at Persimmon, Goldman Sachs said.
Taylor Wimpey’s net private sales rate fell 5% year-on-year to 0.72, below Persimmon’s 0.76. Goldman Sachs forecast volume growth of 0% in fiscal 2026 and 2% in fiscal 2027, lagging the sector average of 3% and 4%, respectively, with completions projected at 10,614 in fiscal 2026.
“We view the premium valuation (2026E P/E of 13.8x vs 9.5x peers, P/B 0.68x vs peers 0.66x) as hard to justify, despite the high (but uncovered) near-term yield,” Goldman Sachs said.
The brokerage forecast return on equity of 4.8% in fiscal 2026, below the 6.5% implied by the current price-to-book ratio of 0.68x, and a two-year earnings-per-share compound annual growth rate declining 10%, compared with 6% growth for peers.
Goldman Sachs said Taylor Wimpey’s shareholder return policy of 7.5% of net tangible assets would represent 157% of underlying profit after tax in fiscal 2026, up from 97% in fiscal 2023.
Net cash fell to £342 million in fiscal 2025 from £564 million a year earlier, with Goldman Sachs modelling a net debt position by fiscal 2028 at current shareholder return levels, potentially putting the forecast fiscal 2026 dividend yield of 11.6% at risk.