Taylor Wimpey (LSE:TW.) shares have fallen 25% over the past year to 114p each today. As a shareholder, that’s a fact I’m painfully aware of. My position’s currently in the red.
There are several factors behind this. It’s been a challenging time for residential developers due to supply chain issues, build cost inflation, and stretched mortgage affordability. But can the FTSE 100 housebuilder turn its fortunes around in the next 12 months?
Here’s what City analysts think about the Taylor Wimpey share price outlook.
Broker forecasts
It’s worth starting with a cautionary note. A lot of hard work and clever mathematical formulas underpin analysts’ share price targets, which shouldn’t be dismissed. But expert opinions aren’t infallible. Nobody has a crystal ball.
While they’re a useful reference point for investors to bear in mind, broker forecasts should be taken with a pinch of salt. They’re certainly no substitute for thorough independent research to acquire a deep understanding of the potential investment opportunity.
With those caveats in mind, here’s the breakdown of expert recommendations for Taylor Wimpey shares.
| Recommendation | Number of analysts |
|---|---|
| Buy | 4 |
| Outperform | 7 |
| Hold | 5 |
| Sell | 0 |
| Strong sell | 0 |
It’s an encouraging set of opinions. None of the 16 institutional analysts covering the stock give it a Sell or Strong sell rating. And over two-thirds take a particularly bullish stance with Outperform or Buy recommendations.
Digging into the details, the consensus 12-month share price forecast among City brokers is 144p. If that materialised, it would represent a very healthy 26% increase from today’s level.
At the upper end, Jefferies takes the most optimistic view. Its 177p share price forecast would mean a 55% rally over the coming year. Supportive government policy for housebuilders is central to the group’s view. Labour’s target is to build 1.5m new homes by 2029.
However, Morgan Stanley believes the outlook for Taylor Wimpey shares is more subdued. It recently cut its forecast to 120p. That would still be an improvement, but only a 5% gain. The bank cites the company’s exposure to London and the South East of England as a concern. House price growth is sluggish in these regions.
My view
I think Taylor Wimpey shares are likely to fare better over the next 12 months than the past year. A forward price-to-earnings (P/E) below 13.5 means the valuation’s attractive today.
Let’s also not forget the 8.2% dividend yield. This adds significantly to the stock’s overall return. A net cash position just shy of £565m means the dividend’s well supported by a robust balance sheet, even if payouts aren’t guaranteed.
Jefferies is right to point to the potential boosts from government policy. Taylor Wimpey’s landbank of around 79,000 plots means it’s in a great position to take advantage.
Admittedly, weakness in the UK housing market is a risk, since it squeezes housebuilders’ margins and reduces demand. A stamp duty tax hike isn’t helping matters. Neither are high interest rates, which could linger longer than expected amid sticky inflation.
Nonetheless, I think there are still good reasons for me to hold the stock. I reckon Taylor Wimpey shares will be trading higher this time next year, and I’ll be looking at a profit from my investment. Let’s see if I’m right.
