Buckingham Upgrades KB Home After 12% Price Drop

KB Home KBH shares have declined over 12 percent in the last few weeks, significantly underperforming its peers, according to Buckingham Research Group. 

The Analyst

Buckingham analyst Mark Weintraub upgraded shares of KB Home from Underperform to Neutral and maintained a $34 price target for the shares.

The Thesis

The two-week slump in KB Home shares is apparently a retrenchment from an overextended valuation, fueled in part by short covering after the earnings release, Weintraub said in a Friday morning note. (See the analyst's track record here.) 

The stock rallied more than 10 percent in reaction to its earnings report, which showed what Weintraub termed a "solid beat, moderate raise."

KB Home appears to be on track to meet or exceed 2019 goals it laid out in late 2016, calling for conversion of substantial assets to productive status and earnings per share of more than $3. The company's execution has been much better over the last several quarters, the analyst said. 

Buckingham maintained its 2018 earnings per share estimate — excluding an expected $1.15-per-share writedown related to the impact of tax reform — of $2.60.

The company's shares now trade at a modest premium to the other home builders Buckingham covers, but at a discount on a price-to-book basis.

"While we still do not consider the stock inexpensive, nor do we consider it especially expensive, hence we are moving to a Neutral rating," Weintraub said. 

The Price Action

Notwithstanding the recent pullback, shares of KB Home are up about 100 percent over the past year.

At last check, shares of KB Home were falling 0.80 percent to $33.50. 

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Posted In: Buckingham Research GroupconstructionhomebuildersMark WeintraubAnalyst ColorUpgradesPrice TargetAnalyst Ratings