Wells Fargo Finds 'A Litany Of Reasons' To Upgrade KB Home

KB Home KBH holds the unfortunate title of the worst-performing stock within the home builder group since its peak in January, but after the company's fiscal first-quarter report Thursday,  there are "a litany of reasons" to turn bullish, according to Wells Fargo.

The Analyst

Wells Fargo's Stephen East upgraded KB Home's stock from Market Perform to Outperform with a price target lifted from $35 to $37.

The Thesis

KB Home's Q1 came in better-than-expected across the board, East said in the upgrade note. The homebuilder raised its guidance for the second time since November, but there is reason to believe that upside remains, the analyst said. 

East named the following 'litany of reasons' for Wells Fargo's bullish turn on the homebuilder:

  • The company continues to add exposure to its most profitable region, the West Coast.
  • KB Home should see a 270-basis-point operating margin improvement to 9.8 percent.
  • SG&A improvement has been "stellar" and should continue improving.
  • EPS should grow 68 percent this year and 32 percent next year.
  • KB Home's stock is looking attractive at 1.19x the estimated 2018 book value of $24.32 and 0.99x fiscal 2019's BV of $29.
  • KB Home is a standout in the homebuilder sector, with a "good dose of self-help."

Price Action

Shares of KB Home were trading higher by more than 3 percent late Friday morning. 

Related Links:

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KB Homes Downgraded On Valuation Risk After 'Ballistic' Growth

Posted In: homebuildershomesStephen EastWells FargoAnalyst ColorUpgradesPrice TargetAnalyst RatingsReal Estate