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Why Wells Fargo Is Bullish On KB Home, DR Horton
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 DateFirmActionFromTo Apr 2021Wells FargoInitiates Coverage OnOverweight Mar 2021KeyBancMaintainsOverweight Mar 2021Wolfe ResearchInitiates Coverage OnOutperform View More Analyst Ratings for DHI View the Latest Analyst Ratings See more from BenzingaClick here for options trades from BenzingaNew Zealand Gave Amazon 6M To Cover Costs On New ‘Lord Of The Rings’ SeriesBenzinga’s 5-Step Guide For First-Time Homebuyers© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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