Tri Pointe Homes (TPH) is facing near-term challenges, leading to lowered estimates for 2025 earnings, revenue, and margins, RBC Capital Markets said in a note Wednesday.

The home construction company appears "cheap" on its tangible book value but short-term challenges prevent a clear catalyst for growth or returns, delaying any potential improvement until 2026, RBC said.

Despite efforts to balance price and pace in a volatile market, near-term challenges like reduced return on equity and murky catalysts have led to a stock downgrade, though long-term growth potential remains for 2026 and beyond, RBC said.

"[Tri Pointe Homes] trades at a significant discount to the peer group, limiting meaningful downside risk in our view, though we see further upside as limited while growth/margins remain stunted in the [near-term]," RBC said.

RBC expects a significant decline in return on tangible equity for 2025 and 2026 compared to previous years due to weaker demand and the stabilization of near-term gross margins, impacted by higher incentives and land costs, the report said, adding that "[a] recovery in ROTE will likely take longer than peers given the ongoing mix shift."

RBC downgraded the company's stock to sector perform from outperform, and lowered the company's price target to $37 from $41.

Shares of Tri Pointe Homes were down about 4% in recent trading.

Price: 31.00, Change: -1.28, Percent Change: -3.97