D.R. Horton’s
focus on quick move-in homes provides upside to the stock, according to an analyst at Goldman Sachs, while rising mortgage rates and higher home prices are risks to
KB Home.
Goldman Sachs analyst Susan Maklari upgraded shares of
D.R. Horton
(ticker: DHI) to Buy from Neutral and slightly lowered her price target to $131 from $132. Maklari downgraded
KB Home
(KBH) to Neutral from Buy and cut her price target to $48 from $54.
Potential homebuyers are facing a challenging housing market. The average weekly mortgage rate as of last week was 7.57%, according to Freddie Mac, the highest level since late 2000. With rates so high and prices rising, home sales fell to their lowest level since January in August, according to the National Association of Realtors.
Maklari wrote in a research note that with prices at elevated levels, she likes
D.R. Horton
stock as the home builder has a focus on quick move-in, lower-priced homes.
“As rates move higher, we note an increased preference among consumers for more affordable, quick move-in homes, aligning well with the company’s focus on pace vs. price,” Maklari said. She noted that D.R. Horton offers Express Series, which provides entry-level home buyers more affordable housing options.
“Established in 2014, this brand has seen more limited competition as peers stick to more expensive (and less risky), closer-in locations,” Maklari said.
Shares of D.R. Horton were rising 0.7% Monday to $104.43. The stock has climbed 17% this year.
KB Home
shares have jumped 38% this year. Because of the jump in the stock price and the ongoing risks to the housing market, Maklari doesn’t see much more upside to shares in the near term.
“Around 75% of KB Home’s closings are build-to-order homes vs. an average of 59% for our homebuilding coverage. Although we appreciate the increased visibility and higher near-term margin profile, we believe the longer conversion cycle could put closings at greater risk as rates rise,” Maklari added.
Shares of KB Home were up 0.3% to $43.98.
Write to Angela Palumbo at [email protected]
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