Price Target, Ratings Updates On Residential Construction Companies

Includes: KBH, LEN, MDC, TOL
by: David Ristau

Our EquityAnalytics department is always updating price targets and ratings on companies that we cover based on new information. Our price targets and ratings are thoroughly researched and use financial analysis tools to determine stock prices. Today we are updating the following companies from our coverage: KB Homes (NYSE:KBH), Lennar (LEN), MDC Holdings (NYSE:MDC), and Toll Brothers (NYSE:TOL).

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

Click to enlarge image.

KB Homes: Downgrade from Hold to Sell, Decrease PT from $11 to $6

KB Homes was downgraded to Sell as we are not liking its recent results. While we do believe the housing market is starting to recover, KB Homes is one of our least favorite options. The company disappointed on our earnings' expectations, saw margins drop, and revenue was lower than expected. Additionally, while many other companies are seeing orders rise, KB Homes saw its orders drop in their latest quarter. The company saw its cancellation rate increase as well. Yet the company has made some positive changes in moving out of weak geographical areas. We expect it to continue to struggle for the near term, and we would be willing to revamp our price target on the company if it shows a solid rise in order and margin growth.

Lennar: Upgrade from Sell to Hold, Increase PT from $17 to $24

Lennar put together a solid quarter that made us up our expectations. The stock no longer appears as overvalued as it has in the past, with its forward P/E coming in at around 18 at this point. Its latest quarter was very strong, and we upped our expectations for the company on operating income and depreciation. At the same time, the stock's current 50-plus P/E shows that the stock has priced in most or all of its future growth at this point. We believe that upside is fairly limited here, and would need more positive movement for the company to continue to increase our expectations.

MDC Holdings: Maintain at Hold, Increase PT from $25 to $29

MDC Holdings continues to be a solid holding in the housing industry, and we believe that the company has a bit more upside than previously thought. The company seems well positioned to benefit from increase in home sales, and its latest report showed it is doing better with orders and backlog. We believe the company will be profitable this year, and it has done the necessary things to get there. Improvement in margins could really send this stock soaring.

Toll Brothers: Maintain at Hold, Increase PT from $20 to $24

Toll Brothers is one of the better-positioned companies in the industry as it operates in the luxury home arena, but even Toll has not been able to do as well as some may have thought. The company continues to inch along like other names, and it only slightly outperformed our expectations in the latest quarter. We prefer other companies in the industry, but Toll has limited downside due to its "luxury" blanket. We believe that the company needs to show some more solid results before we would be willing to up our rating.


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

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