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On Tuesday, Evercore ISI adjusted its price target for KB Home (NYSE:KBH), bringing it down to $77.00 from the previous $83.00, while keeping an Outperform rating on the stock. Currently trading at $59.09, InvestingPro analysis suggests KB Home is undervalued, with the stock trading at a modest 6.78x P/E ratio. The adjustment followed KB Home’s first-quarter earnings report for fiscal year 2025, where the company posted an adjusted diluted earnings per share (EPS) of $1.50. This figure fell short of Evercore ISI’s projection of $1.63 and the general market consensus of $1.58.
KB Home, which released its earnings for the quarter ending in February, also reported that gross margins aligned with prior guidance, maintaining a healthy 21.71% gross profit margin. However, the company has revised its guidance metrics to reflect slower sales in the first quarter and reduced expectations for net pricing. The homebuilder saw a sluggish pace of sales until mid-February, which prompted a shift from offering pocket incentives to lowering base prices—a strategy that has since spurred a rebound in sales to meet company forecasts. According to InvestingPro, the company maintains strong financial health with a "GOOD" overall score, supported by liquid assets exceeding short-term obligations.
The company’s operations were also affected by delayed energy hookups due to the aftermath of the California wildfires and postponed community openings. In response to the earnings release, KB Home stock experienced a 7% decline in after-hours trading, a reaction Evercore ISI deemed excessive. The firm pointed out that the market had already anticipated potential sales and gross margin challenges, especially since this year’s Spring Selling Season has not met expectations.
KB Home’s net new orders saw a year-over-year decrease of 17%, with an average order price of $486,000, reflecting a 1% drop quarter-over-quarter but a 2% increase year-over-year. Housing revenues came in at $1.39 billion, below both Evercore ISI’s estimate of $1.53 billion and the company’s own forecast range of $1.45 billion to $1.55 billion. The miss was attributed to fewer closings than expected, although pricing was consistent with estimates. Additionally, the selling, general and administrative expenses (SG&A) were reported at 11% of homebuilding revenues, missing both Evercore ISI’s and the company’s guidance figures.
Following the first-quarter results, Evercore ISI has revised its full-year 2025 and 2026 EPS forecasts for KB Home to $7.15 (down from $7.56) and $8.11 (down from $8.35), respectively. Despite the revisions and the recent stock price dip, the firm reaffirms its positive outlook on KB Home with a revised price target, anchored by an 11x multiple on the firm’s forward-twelve-month adjusted diluted earnings estimate. InvestingPro subscribers have access to 12 additional key insights about KB Home, including detailed analysis of its valuation metrics and growth potential. The comprehensive Pro Research Report, available for this and 1,400+ other US stocks, provides deep-dive analysis and actionable intelligence for informed investment decisions.
In other recent news, KB Home reported its first-quarter financial results for fiscal year 2025, which did not meet market expectations. The company posted earnings per share of $1.49, falling short of the projected $1.59, and revenue of $1.39 billion, below the anticipated $1.5 billion. This performance led to a revision in the company’s full-year revenue guidance, now expected to range between $6.6 billion and $7.0 billion. In response to market conditions, KB Home reduced base pricing by approximately 3%, resulting in a 40% increase in sales absorption over five weeks, though this move impacted margins.
Analysts have responded to these developments with adjustments to their outlooks. Raymond (NSE:RYMD) James lowered KB Home’s price target from $80 to $65 but maintained an Outperform rating, citing a favorable risk/reward balance despite the earnings miss. RBC Capital also cut its price target from $67 to $63, keeping a Sector Perform rating, while Wolfe Research reduced its target from $68 to $60, maintaining an Underperform rating due to skepticism about the company’s margin guidance. Keefe, Bruyette & Woods, however, held a steady price target of $76 with a Market Perform rating, despite noting the company’s revised 2025 guidance.
Analysts have highlighted challenges such as declining order volumes and increased land costs, but some see potential for margin improvement in the second half of the year. KB Home’s strategic pricing adjustments and market responses are being closely watched as they navigate these challenging conditions.
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