SKY - Skyline Champion downgraded at RBC as backlog slump prompts greater demand uncertainty

RBC Capital Markets analyst Mike Dahl has downgraded shares of Skyline Champion ( NYSE: SKY ) to Sector Perform from Outperform as the homebuilder's fiscal second-quarter drop in backlog prompted further uncertainty around demand prospects through 2024.

The company said its total backlog fell 41% to $0.8B in Q2 vs. Q1, reflecting increased production and a moderation of order rates as retailer’s destocked existing inventory due to tightening floor plan credit limits.

"This resulted in essentially no retail orders for the period and also limits the ability for SKY to ship backlog as dealers couldn’t take delivery, a dynamic that will likely see little improvement in F3Q," Dahl wrote in a note to clients.

Overall, "our concern is that end market demand will weaken as retail channel issues are sorted through and credit may further tighten, limiting any rebound in orders," he added.

In turn, the analyst lowered his 2023 revenue estimate to $2.59B from $2.75B. That compares with the $2.60B consensus. On the other hand, he expects adjusted EBITDA margin to be 19.6% in 2023 compared with 19.2% in his prior view.

The Sector Perform rating diverges from both the Quant's Strong Buy rating and the average Wall Street analysts' Buy rating.

Seeking Alpha contributor Daniel Jones, who sees SKT stock as a Neutral pick, warned investors to take a more cautious approach when it comes to SKY given its cyclicality with the slowing housing market as well as its backlog deterioration .

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