Goldman Sachs Upgrades KB Home As Selling Season Begins

As the home selling season begins, the build-to-order strategy of KB Home KBH puts it in a good position, and the company's elevated backlog provides earnings visibility over the next couple of quarters, according to Goldman Sachs.

The KB Home Analyst: Susan Maklari upgraded KB Home from Sell to Buy, while raising the price target from $32 to $51.

The KB Home Thesis: The company’s performance may also be boosted by potential community count growth, beginning from the back half of fiscal 2021 and rising an estimated +10% in fiscal 2022, supporting gains in orders, Maklari said in the note.

“Along with this, we forecast continued EBIT margin expansion through F2021, allowing for improved ROE. Finally, we note the company will benefit from easier comparisons versus some of its peers, as it laps the self-induced, more restrictive shutdown it endured in 2020 as the pandemic set in,” he added.

“Although KB Home’s build-to-order model was a headwind in 2020, limiting its ability to quickly convert increased demand into earnings, we believe it positions it well for 2021. The company ended F4Q20 with unit backlog up 54% YOY, bucking seasonal norms and at the highest level since 2006,” Maklari wrote.

KBH Price Action: KB Home’s shares had risen by 3.5% to $42.16 on Friday.

(Photo by Josh Olalde on Unsplash)