They said Taywood chief executive Keith Egerton had carried out a strategic review of construction operations, and that more than 500 Taywood staff could be made redundant.
Taywood declined to comment in detail, but a spokesman said an announcement on the future of the firm's construction division would be made in the near future. The City expects to hear by mid-May at the latest.
At the firm's year-end results announcement last month, Egerton said he wanted the construction division to focus on its core strengths and work for which it was "appropriately rewarded".
Analysts predict that the company will withdraw from all tendered work in the same way that Alfred McAlpine pulled out of the lower-margin end of the market in 1996.
This would allow the firm to concentrate on private finance initiative work and opportunities where it is also acting as client, such as work for its housing and property arm.
Analysts believe that up to 700 staff could be made redundant. This would leave Taywood with a redundancy bill of £10m or more, as long-serving staff could receive £15 000-20 000 each.
One analyst said: "If you are an investor, you want Taylor Woodrow to get out of construction. How they do that is their problem.
"If Keith Egerton wants to make his mark with investors, that move would go down well. There is a desire for some quite radical surgery. I wouldn't be surprised if something is very near, but I can also understand why he might balk at it."
Another said: "The new chief executive [Egerton took over in November 1998] has had a long enough period to analyse what is going on. He should know by now that the market would like to see Taywood focus on being a housing and property company.
"For some years, they haven't made much money from construction. What makes anyone think they are going to start now?" He also said Egerton might be interested in merging the firm's construction business with a demerged Tarmac Construction.
Taylor Woodrow's construction division employs 2300 people in the UK. In 1998, it made a pre-tax profit of £6.1m, up from £5.3m the previous year. However, its housing arm is considerably more profitable; it recorded a pre-tax result of £56.3m in 1998. Its development arm posted pre-tax profit of £22.9m.
Until this review of the construction arm, Taywood executives said the reason for keeping the less profitable division was so that its turnover could be invested in the homes and property arms. Analysts argue that a smaller construction operation could still do this, and that a scaled-down division would be easier to manage.
One analyst said: "If Taywood distance themselves from construction, it will be well received. I think it would help the share price if they made an exit altogether. On the face of it, it would be a very positive move for the group."
