U.S. Markets open in 5 hrs
  • S&P Futures

    4,059.50
    -86.75 (-2.09%)
     
  • Dow Futures

    33,521.00
    -662.00 (-1.94%)
     
  • Nasdaq Futures

    13,000.50
    -345.50 (-2.59%)
     
  • Russell 2000 Futures

    2,134.20
    -69.10 (-3.14%)
     
  • Crude Oil

    63.78
    -2.30 (-3.48%)
     
  • Gold

    1,819.90
    -16.20 (-0.88%)
     
  • Silver

    27.10
    -0.56 (-2.03%)
     
  • EUR/USD

    1.2080
    -0.0072 (-0.5919%)
     
  • 10-Yr Bond

    1.6950
    +0.0710 (+4.37%)
     
  • Vix

    28.25
    +6.41 (+29.35%)
     
  • GBP/USD

    1.4057
    -0.0087 (-0.6171%)
     
  • USD/JPY

    109.6200
    +1.0000 (+0.9206%)
     
  • BTC-USD

    50,182.17
    -354.03 (-0.70%)
     
  • CMC Crypto 200

    1,468.19
    -95.64 (-6.12%)
     
  • FTSE 100

    7,004.63
    +56.64 (+0.82%)
     
  • Nikkei 225

    28,147.51
    -461.08 (-1.61%)
     

Why Wells Fargo Is Bullish On KB Home, DR Horton

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
Phil Hall
·2 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Wells Fargo has debuted coverage of the homebuilding companies KB Home (NYSE: KBH) and D.R. Horton, Inc. (NYSE: DHI).

Thumbs Up On KB Home: Deepa Raghavan, senior equity analyst, initiated coverage of KB Home with an Overweight rating and $55 price target.

“The company is a vastly improved version vs the past few years,” the analyst said.

“KBH now holds a top 5 market share position in more than two-thirds of its markets (vs. half in 2015).”

She praised KB Homes’ combination of revenue growth, a margin expansion potential that's “not dependent on macros” and strong return on equity expansion prospects.

The company addressed lingering issues that previously kept it from reaching a greater potential, Raghavan said.

“KBH has also shed a lot of its legacy issues at this time, including dealing with mothballed assets, high leverage, uneven operation, etc., and is poised to reap full benefits of its scale/growth-focused strategy.”

Related Link: Wells Fargo Downgrades AMC Networks, Discovery, ViacomCBS: What Investors Need To Know

Sizing Up DR Horton: Raghavan initiated coverage of D.R. Horton with an Overweight rating and$105 price target.

The analyst predicts the company could “outperform this cycle given its solid market scale, dependable execution, significant exposure to entry-level demand, and peer-leading balance sheet capacity.”

Yet she acknowledged some investors may not be entirely convinced of the stock’s viability, pointing out the company’s “heavy reliance on entry-level demand for growth and its spec-heavy business model, which tend to lead to higher inventory drag in a slowdown.”

Nonetheless, Raghavan praised the company’s scale and geographical diversification as being able to buffer against any potential housing market slowdowns, adding that it generated the largest return on equity among its peers.

“We believe DHI is well-situated medium term given the solid demand dynamics in the overall housing market,” she wrote. “But it also can leverage its market-leader position effectively (DHI holds the top 2 positions in most major markets in which it participates).”

(Photo: A KB Home property in Converse, Texas. Photo courtesy KB Home.)

Latest Ratings for DHI

Apr 2021

Wells Fargo

Initiates Coverage On

Overweight

Mar 2021

KeyBanc

Maintains

Overweight

Mar 2021

Wolfe Research

Initiates Coverage On

Outperform

View More Analyst Ratings for DHI
View the Latest Analyst Ratings

See more from Benzinga

© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.