Updating Price Targets And Ratings For 6 Homebuilders

Includes: BZH, CAA, DHI, KBH, LEN, TOL
by: David Ristau

Earnings season is under way, and we are continuing to update price targets, buy/sell ratings, etc., for companies that we currently cover. Today, we have updated several companies. They include Beazer Homes (NYSE:BZH), DR Horton (NYSE:DHI), KB Homes (NYSE:KBH), Lennar (NYSE:LEN), Standard Pacific (SPF) and Toll Brothers (NYSE:TOL).

The chart below shows new ratings, price targets, and buy/sell ranges versus old ones:

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BZH – Maintain at Sell, Maintain PT at $0

Beazer Homes (BZH) was showing its next major move was to profitability. We projected the company to hit around -$110 to -$120 million in operating loss this year, and we thought the company was worth about $0. The company actually hit -$200M in operating income for the year. Things do not look good at all for Beazer Homes. Profitability looks questionable for quite some time, and it is questionable if this company will make it to the time when the housing industry recovers.

DHI – Maintain at Buy, Increase PT From $13 to $17.50

DR Horton is one of our favorite residential construction companies in the sector. For one, the company is right at profitability right now and should move back in the black for 2012. The company, additionally, exceeded our expectations for its latest FY. We were expecting around a $20M loss in operating income for 2011. The company was able to finish the year at a $7M loss. We see them as having a nice 2012 and moving up in value. The company has decreased its debt load, and we look for that to continue to decline in 2012.

KBH – Upgrade From Sell to Hold, Increase PT From $8 to $8.50

KB Homes was upgraded more because the stock is more at where it should be at its current range. We are not huge on the company's future. We believe they may breakeven in 2013. The company did not do well in the latest quarter. The company is losing more money than we expected, but we did see a bit of a reason to up our PT. The company did see a surge of new home orders that went up 40%. That surge was a bit more than we were expecting. The company still has about as much debt as fair market value, which is a major issue for the company.

LEN - Downgrade From Buy to Hold, Decrease PT From $23.50 to $20.50

Lennar was a Buy for us, but the company has made the move we expected in upside. It now looks like a Hold at this point. We dropped our PT as the company's earnings were a little weaker than expected. Additionally, home orders were up 11%, but that was not as good as we had expected it to be and did not move at the same rate as some of its competitors. We still like Lennar, and think it is one of the best Holds in the sector. They are profitable, but they have limited upside after a 50% move over the past couple months.

SPF - Maintain at Hold, Increase PT From $2 to $3

Standard Pacific was maintained at Hold. We increased our PT from $2 to $3 after the company exceeded our expectations for the year. The company is close to profitability, but they are not a Buy. A small company but if they can hold over $5, drop debt, and see a better overall residential construction environment.

TOL - Maintain at Hold, Increase PT from $19.50 to $20

Toll Brothers is the king of luxury in residential construction. The company did exceed our expectations for the year, and we did increase our expectations for the year. We see profitability hitting the company next year, and we definitely believe luxury residential construction will be the first place to see the rush back to housing. We think this will occur in the next year. We do see TOL as pretty fair valued right now, and we would be willing to increase our expectations if the company would keep working capital levels fairly low while reducing debt. This has not been the case in the past for TOL, however.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.