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'A Clearer Path To Earnings Growth': KB Home's Strong Q2 Triggers Analyst Upgrades

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'A Clearer Path To Earnings Growth': KB Home's Strong Q2 Triggers Analyst Upgrades

Shares of KB Home (NYSE: KBH) were surging Thursday after the homebuilder posted stronger-than-expected second-quarter results, bolstering sentiment in the closely watched sector and leading two sell-side analysts to upgrade the stock. 

The most appreciated part of the report on the Street:  news that orders were much stronger than expected in the quarter, up 15% year-over-year. Analysts had expected the number to be flat.

The strength was widespread, with all regions of the country turning in double-digit increases following recent weakness.

The Analysts

Buckingham Research Group analyst Megan McGrath upgraded KB Home from Neutral to Buy and raised the price target from $27 to $30.

KeyBanc’s Kenneth Zener upgraded the stock from Sector Weight to Overweight with a $30 price target. 

The Takeaways 

KB Home’s second quarter order momentum warrants higher expectations for growth for the coming quarters, KeyBanc's Zener said in a Wednesday note. 

The order strength improves the overall outlook for the second half of this year and for 2020, despite market news that has suggested otherwise, the analyst said. 

The stronger-than-expected report comes as analysts are also expecting homebuilders to get a boost from lower interest rates.

Gross margins have a tailwinds from lower interest rates, as well as from firming prices and improving volume, Buckingham's McGrath said in a Thursday note.

"With a much clearer path to earnings growth in the near-term we believe that sentiment on KBH should improve,” the analyst said. 

Worries remain about the overall economy. 

“We see the biggest risk to our upgrade from the overall macro environment, if recent improvements in housing demand were to reverse,” McGrath said.

Price Action

KB Home shares were up 4.89% at $24.69 at the time of publication Thursday. 

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Latest Ratings for KBH

DateFirmActionFromTo
Aug 2019Initiates Coverage OnBuy
Aug 2019Initiates Coverage OnBuy
Jul 2019UpgradesIn-LineOutperform

View More Analyst Ratings for KBH
View the Latest Analyst Ratings

Posted-In: Buckingham Research homebuildersAnalyst Color Earnings News Upgrades Price Target Analyst Ratings Best of Benzinga

 

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