The S&P/ASX 200 Index (ASX: XJO) share Reece Ltd (ASX: REH) hit a 52-week on Friday of $13.21. Since September 2024, the Reece share price has dropped more than 50%, as shown on the chart below.
Despite the decline, the company still has a market capitalisation of $8.7 billion. The plumbing, bathroom and HVAC business is a leader in Australia, but it also has a significant presence in the sun belt states of the US.
The business recently announced a trading update that was below market expectations because of a challenging trading environment due to ongoing housing cycle softness in Australia, New Zealand in the US, hurting volumes and operating profit (EBIT) margins.
In the US, the business pointed out there has been a slowdown in residential housing starts, high mortgage rates and housing affordability. There has also been increased competition in its US segments.
On top of that, the broker UBS is wary of competition in the waterworks business as a competitor ramps-up a store rollout.
Image source: Getty Images
Is the ASX 200 share an opportunity?
After seeing the update, UBS decided to reduce its FY26 EBIT expectation for Reece by 19% to $502 million, implying a 9% decline year-over-year. US EBIT is expected to drop 17% in FY26 to $171 million and in ANZ it's forecasting a 4% decline of EBIT to $331 million.
Due to the lower growth outlook amid uncertain ANZ and US demand, UBS has a sell rating on the business.
The broker's numbers imply the Reece share price is trading at 30x FY26's estimated earnings, above its long-term (following the MORSCO acquisition) average of 29x.
UBS expects the stock's performance to continue to see headwinds from a more uncertain macroeconomic environment, housing affordability issues and tariff/geopolitical uncertainty impacting the US residential housing cycle.
Potential positives could be an increase in ANZ and US repair and renovation activity, as well as residential construction due to the lag impact of interest rate cuts.
With that in mind, the broker has a price target of $13.50 on the business, implying no gains within the next year.
Given this forecast, investors should seek out more attractive ASX share market opportunities.
