02:51 PM EDT, 07/11/2024 (MT Newswires) -- Large homebuilders are expected to show upside to key metrics heading into second-quarter results, which could drive stocks higher against a negative-sentiment backdrop, UBS Securities said on Thursday.

Large builders are in a better position to procure land, labor, materials and financing compared with their smaller peers, according to the brokerage. This is giving them outsized market share gains as demand meets historically low single-family home supply.

"We expect these dynamics and consistent execution to drive upside to consensus deliveries, revenue, gross margins, orders and (earnings per share)," UBS analysts John Lovallo and Spencer Kaufman said in the note.

UBS survey data and channel checks show that home buying remained resilient through the second quarter, with 33% of respondents indicating that they plan to purchase a residential property within the next 12 months, above the historical average of 30%.

There are signs suggesting negative investor sentiment on the homebuilding sector. Homebuilding and building product stocks in UBS's coverage have underperformed the market since the end of the first quarter, with average returns down 10.6% and 16.3%, respectively, compared with a gain of 7.2% for the S&P 500 over the same time.

"This could result in favorable stock reactions if financial outlooks are edged higher, which we anticipate will be the case," Lovallo and Kaufman said.

The brokerage rates DR Horton ( DHI ) , Meritage Homes ( MTH ) and Toll Brothers ( TOL ) at buy. DR Horton ( DHI ) and Toll Brothers' ( TOL ) shares climbed more than 6% each, while Meritage Homes ( MTH ) was up 8.7% in afternoon trade. Lennar ( LEN ) and KB Home ( KBH ) were up 6.3% and 9.2%, respectively.

A UBS survey showed that 63% of consumers intend to begin a home improvement project over the next 12 months, above the historical average of 58%. Repair and remodel activity held up despite ongoing softness in the existing home sales market, the analysts said.

Price: 154.76, Change: +9.04, Percent Change: +6.20