Credit Suisse Upgrades William Lyon Homes

Credit Suisse upgraded William Lyon Homes WLH Tuesday from Neutral to Outperform and cut its price target from $26 to $24

Analyst Michael Dahl believed “the market reaction to the well-telegraphed capital raise was overdone. The sell-off provides an attractive entry point to own a builder that has growth prospects among the best-in-class (orders, revenues, and earnings) and is now priced at a discount valuation (1.3x YE'15 TBV vs. the group avg. of 1.5x).”

“Additionally, our prior concern was that expectations were too high for '15, but we think investor expectations for gross margins in particular have sufficiently reset following 3Q/14 results, which sets up the stock to benefit from the substantially above-average order growth we still anticipate,” according to Dahl.

The $24 target price was based on 1.6x YE'15 TBV estimate, “which is in-line with our average target multiple. However, we see significantly higher growth at WLH than most peers, as we est. order growth of +79 percent in 2015 (vs. the industry growth rate of +17 percent), revenue growth of +85 percent (vs. +15 percent for the industry), and EPS growth of +117 percent (vs. the industry median of +14 percent),” according to the analyst report.

William Lyon Homes recently traded at $19.16, up 0.1 percent.