Homebuilder stocks remain volatile, given ongoing mixed signalsÂ in the housing market. Yet today MKM Partners analyst Megan McGrath upgraded KB Home (KBH) from Sell to Neutral, arguing that while risks remain, much of these are already baked into the stock price.
McGrath wrote that one of the primary rationales for her Sell rating was the market’s overly optimistic view of the stock, one that has since been reined in considerable as shares took a 32% tumble since mid-February and now trade at a discount to the homebuilder group as a whole.
“In addition, although we continue to forecast earnings losses for the company for the next two quarters, we believe that some of the companyÂs issues in Q1, especially around order growth, were likely temporary in nature and will, at the very least, abate over the next two quarters,” she wrote. Â ”The positive order trends weÂre hearing from other companies also leads us to believe that KBH could begin to benefit from general market improvements once it addresses its internal issues.”
Still, McGrath left her $10 price target unchanged and noted that she would need “to see at least one quarter of much better order growth before becoming more constructive from an earnings perspective.”