MKM Partners Sees Homebuilder Momentum Carrying Forward Through The Fall '12; Upgrades DHI, LEN & KBH

July 13, 2012 1:59 PM EDT
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This morning, MKM Partners commented on Homebuilder stocks, saying there are valuation drivers that point to further upside.

Analyst, Megan McGrath, upgraded D.R. Horton (NYSE: DHI), Lennar (NYSE: LEN) and KB Home (NYSE: KBH) from 'Neutral' to 'Buy'.

McGrath said, "In the short-term we believe that new home sales growth trends will be an important driver of homebuilder valuations (rather than month-to-month fluctuations). We are currently forecasting acceleration in new home sales growth into Fall 2012, which should support further upside to builder valuations. However, we caution that beyond early Fall we believe multiples could begin to contract if our outlook for growth does not improve."

McGrath also backs up her thesis from the recent actions of some of the homebuilder companies including: 1) KBH's management said it was 'going on offense' during the company's conference call after topping Q2 estimates on June 29; 2) Meritage (NYSE: MTH) and Beazer (NYSE: BZH) recently raised equity.

MKM raised its price target on DHI from $18 to $22, KBH from $10 to $13, LEN from $31 to $36, Ryland (NYSE: RYL) from $26 to $29,Toll Bros (NYSE: TOL) from $30 to $34, and NVR (NYSE: NVR) from $755 to $826.

Separately, MKM downgraded Pulte Homes (NYSE: PHM), citing concerns over valuation lag. Price target raised $1 to $12.

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