KB Home (KBH) PT Bumped to $20 at JMP Following 'Strong' Results

JMP Securities analyst Peter Martin reiterated a Market Outperform rating and bumped his price target on KB Home (NYSE: KBH) to $20.00 (from $19.00) after the company delivered strong F4Q16 results.

Martin commented, ".... Based on guidance, we lower our 2017 and 2018 normalized EPS estimates to $1.58 and $1.91 from $1.75 and $2.01. However, the decline in earnings was entirely driven by the higher tax rate, which will not negatively impact cash flow given KBH’s $739mm deferred tax asset (DTA). We continue to believe KBH is a unique investment opportunity in the homebuilder space, as nearly $550mm of free cash flow should be generated over the next two years, which we expect to be used to pay down two tranches of high-yielding notes ($264mm at 9.1% and $300mm at 7.25%), lower leverage, and positively impact gross margin as a smaller amount of interest is spread across a higher number of homes under construction. Further, management is making progress within its Southeast division, which has been a perennial underperformer and we see $0.15-$0.30 per share of potential operating upside as the capital is recycled and invested into new land positions over time. Lastly, it was mentioned on the call that $200mm of KBH’s DTA may not be subject to revaluation under Trump’s tax plan, which implies value creation on a higher ROE relative to the change in our adj. book value. Given multiple positive tailwinds for KBH, we increase our price target to $20 from $19 by applying a 1.1x multiple (prior 1.0x) on our FTM adj. book value (prior 2017), supported by a 10% ROE. Our price target implies 20% potential upside from current levels."

For an analyst ratings summary and ratings history on KB Home click here. For more ratings news on KB Home click here.

Shares of KB Home closed at $16.60 yesterday.

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