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On Tuesday, Keefe, Bruyette & Woods maintained a Market Perform rating on KB Home (NYSE:KBH) with a steady price target of $76.00. The firm’s analysts noted that KB Home’s first-quarter earnings per share (EPS) and its 2025 guidance fell short of expectations due to lower-than-anticipated deliveries, increased selling, general and administrative expenses (SG&A), and financial services performance. Year-over-year orders declined by 17%, a steeper drop than Keefe, Bruyette & Woods and consensus estimates, which predicted flat to a 2% decrease.
KB Home has responded to market challenges by reducing prices in half of its communities, which has helped to stabilize and improve sales rates, according to the analysts. However, despite these efforts, the management team has revised its 2025 fiscal year guidance downwards. The new projection suggests a second-quarter 2025 EPS of $1.45, compared to Keefe, Bruyette & Woods’ estimate of $1.89 and the consensus of $1.91. Additionally, the full-year 2025 EPS is now expected to be $7.22, down from the firm’s estimate of $8.25 and the consensus of $8.16.
The analysts anticipate a negative market reaction to the first-quarter results and the reduced guidance. They highlighted that KB Home’s stock is currently trading at 1.1 times its current book value and 0.9 times its forward book value. According to InvestingPro’s Fair Value analysis, KB Home appears significantly undervalued at current levels, with 12 additional exclusive ProTips available for subscribers. This valuation represents a slight premium compared to its mid-cap industry peers. The commentary suggests that the challenges of affordability and macroeconomic uncertainties have led to softer demand in the housing market, influencing KB Home’s performance and outlook.
In other recent news, KB Home reported its financial results for the first quarter of fiscal year 2025, revealing earnings per share of $1.49 and revenue of $1.39 billion, both of which fell short of analysts’ expectations of $1.59 and $1.5 billion, respectively. The company also noted a 5% year-over-year decrease in housing revenues, with home deliveries dropping by 9%. In response to these results, KB Home revised its fiscal year 2025 revenue guidance to a range of $6.6 billion to $7.0 billion. Additionally, the company adjusted its average selling price expectations to between $480,000 and $495,000. Despite these challenges, KB Home highlighted strong performance in the Las Vegas market, with CEO Jeff Mezger noting that margins in this area are above the company average. The company also announced that Rob Dillard will join as Executive Vice President and Chief Financial Officer. KB Home remains optimistic about improving operating leverage in the latter half of the year, projecting a homebuilding operating income margin of 9.4%.
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