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Grown-Up Homebuilders Ready to Run, Analyst Says

Citigroup says the big names have appreciated enough that large-cap investors might start eyeing them.

A wave of buying by large-cap investors looking for earnings growth is likely to lift shares in the homebuilding space, a Citigroup analyst said Monday in raising price targets on 11 stocks.

Other factors in the homebuilders' favor, according to analyst Stephen Kim, include mostly positive 2004 earnings revisions, easier order comparisons going into the first quarter and the group's habit of rallying in the winter.

Specifically, Kim believes the large-cap growth investor will be interested in the stocks now that several of the companies have market caps of $6 billion to $8 billion. Three years ago, he said, the largest homebuilder's market cap was about $1.2 billion.

In addition to the target price increases, Kim raised estimates on

Hovnanian

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to $7.94 a share from $7.75 a share for 2003 and to $8.95 a share from $8.75 a share in 2004. The stock target price was raised to $115 from $98. Shares of Hovnanian were recently down $2.73, or 3.3%, at $79.89.

Earnings estimates on

Toll Brothers

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were also upped to $3.46 a share from $3.43 a share in 2003, and to $4.10 a share from $3.90 a share in 2004. Kim's price target on Toll Brothers stock is now $50, up from $41. Still, shares of the company were recently down 64 cents, or 1.7%, at $37.02.

Meanwhile, Kim lifted his

Beazer Homes

(BZH) - Get Beazer Homes USA, Inc. Report

target price to $159 from $144;

Centex

(CTX)

to $149 from $121;

D.R. Horton

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to $56, from $45;

KB Home

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to $101 from $92;

Lennar

(LEN) - Get Lennar Corporation Class A Report

to $128 from $109;

MDC Holdings

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to $90. from $78;

Pulte

(PHM) - Get PulteGroup, Inc. Report

to $133, up from $116;

Ryland

(RYL)

to $123 from $108; and

Standard Pacific

(SPF)

to $72, up from $65.

"With fundamentals, technicals, valuation trends and sentiment all positively aligned heading into fiscal year 2004, we expect the homebuilding group to continue its unprecedented rally for a fifth consecutive year," Kim wrote in a research note.