Brazilian Homebuilders Rally on Speculation Shares Undervalued

MRV Engenharia e Participacoes SA led a rally among Brazilian homebuilders amid speculation this year’s drop left the stocks undervalued.

Shares of Belo Horizonte, Brazil-based MRV rose 6.6 percent to 9.98 reais at 2:01 p.m. in Sao Paulo, the highest intraday price since March 19. It was the best performance on the BM&FBovespa Real Estate index, which added 2.3 percent to a 12-week high.

The real estate gauge trades at 12.2 times estimated earnings for the next 12 months, up from a one-year low of 10.2 on July 10. The index’s 19 percent drop this year is excessive compared with the 11 percent decline for Brazil’s Ibovespa benchmark, according to Wesley Bernabe, an analyst at Banco do Brasil SA in Sao Paulo.

“After disappointing results in the first and second quarters, investors oversold these stocks,” Bernabe said in a phone interview. “The job market and income levels in Brazil remain strong despite the slow growth of the economy.”

Some homebuilders are revamping strategies to lessen their dependence on homes for lower-income Brazilians and leaving regions where demand is weak after overestimating the profitability of government-subsidized projects aimed at building 3 million houses for families earning less than 5,000 reais a month.

Cyrela Brazil Realty SA, Brazil’s biggest homebuilder, added 2.6 percent to 16.90 reais. Gafisa SA (GFSA3) rose 4 percent to 3.37 reais. PDG Realty SA Empreendimentos e Participacoes, the second-biggest homebuilder by revenue, added 2.1 percent to 2.46 reais.

Brazil’s unemployment rate fell to 5.6 percent in July, its lowest level in five months. Economic growth accelerated to 1.5 percent in the second quarter, or an annualized 6 percent.

To contact the reporter on this story: Denyse Godoy in Sao Paulo at dgodoy2@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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