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Mizuho Cuts Ratings for Homebuilders KB Home, PulteGroup

Mizuho Securities analyst Haendel St. Juste downgraded both KB Home (KBH) and PulteGroup (PHM) to "underperform" from "neutral" on concerns that full valuations will make it harder for the homebuilders to outperform, Barron's reported.

St. Juste put a $21 price target on KB Home despite "substantial improvement in gross margins." There's more optimism than there should be and lagging orders paired with a low community count mean limited upside, St. Juste wrote.

Pulte got a $22 price target but the lack of expected margin growth and negative absorption rates suggest Pulte's current valuation is "unjustified," according to St. Juste.

St. Juste's two buy-rated stocks in the homebuilder sector are Lennar Corp (LEN) and Toll Brothers Inc (TOL) .

KB Home and Pulte traded down at midday.

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