The Reliance Worldwide Corporation Ltd (ASX: RWC) share price is defying the market drop today after a top broker upgraded the stock.
Shares in the plumbing products supplier jumped 2.7% during lunch time trade to $3.05 when the S&P/ASX 200 Index (Index:^AXJO) shed 0.7% of its value.
The broader market weakness is driven by growing fears of a second wave of COVID-19 infections with new cases popping up in a food market in China.
Reliance upgrade
But this new risk factor is unlikely to change the bullish view on the stock by the analysts at Credit Suisse.
The broker upgraded Reliance to "outperform" from "neutral" following its survey of US contractors. What the broker discovered was that the outlook for the sector is a lot brighter than what it was expecting.
Credit Suisse thought that the repair and remodel (R&R) segment would be hard hit by the coronavirus shutdown. Households would be afraid of inviting contractors into their homes to quote on jobs or undertake projects.
But that thesis was proven to be either incorrect or very short-lived.
Unexpected jump in home renovations
"[The survey] complied by our US team is now showing a positive 3-month outlook, having improved materially in May," said Credit Suisse.
"Our industry discussions also suggest that initial reticence over inviting contractors onto premises has been overwhelmed by increased WFH [work-from-home] usage related maintenance and 'nesting' behaviour."
Weakness in the UK
However, the group's UK operations may not experience a rapid rebound. There are mixed readings from the region with up to 65% of construction sites shut in May.
Since then, around 80% of sites have reopened and hardware retailers like Kingfisher have reported double-digit like-for-like sales growth.
On the other hand, suppliers like Grafton reported a 50% drop in UK distribution sales for May due to restricted trading.
Not all bad news
The broker expects Reliance's sales in Europe, Middle East and Africa (EMEA) to be down 20% to 30% in the current period.
The good news is that this sets a low bar for FY21. Even if lacklustre trading conditions prevail, Reliance should still be able to post a 2% increase in EMEA sales in the next financial year.
The broker's 12-month price target on the stock is $3.25 a share.
Reliance isn't the only building related stock to be in the spotlight today. The Boral Limited (ASX: BLD) share price jumped 5.5% to $3.67 at the time of writing as it announced that Zlatko Todorcevski will take over as CEO from Mike Kane.
