JMP Upgrades KB Home After Q3 Print

KB Home KBH has strong positioning in key growth markets and is showing ongoing gross margin expansion, according to JMP Securities. 

The Analyst

Analyst Peter Martin upgraded KB Home from Market Perform to Market Outperform and established a $30 price target.

The Thesis

KB Home shares are undervalued, as the company is not being given proper credit for its expanding focus on entry-level products, land positions, gross margin expansion, SG&A leverage and solid balance sheet, Martin said in the upgrade note. (See the analyst's track record here.) 

The homebuilder reported third-quarter diluted earnings per share of 87 cents against a 77-cent estimate.

Home sales revenue arrived roughly $20 million below JMP's expectations. KB's 2019 guidance for average community count growth of 10-15 percent outpaces JMP's 5.5-percent estimate. 

“KBH acquired 2,100 lots in Jacksonville, Florida across 17 communities," Martin said. "Eight are open today and nine will open over the next 18-21 months, making it the fourth-largest builder in this market based on deliveries. We really like this deal and believe the Jacksonville market is a great longterm market for KBH."

Additionally, KB Home is enterting the Seattle, Washington market after completing an acquistion, according to JMP. 

Price Action

KB Home shares were down 4.9 percent at $24.05 at the time of publication Wednesday.

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