KB Home stock rating reiterated at Outperform by Raymond James

Investing.com - Raymond (NSE:RYMD) James has reiterated its Outperform rating and $65.00 price target on KB Home (NYSE:KBH), despite the homebuilder’s disappointing spring selling season and revised fiscal year 2025 guidance. According to InvestingPro data, KB Home trades at an attractive P/E ratio of 7.2x and maintains a 40-year track record of consistent dividend payments.

The investment firm highlighted KB Home’s "significant asymmetric risk/reward equation" at just 0.9 times book value, noting the company’s positive cash flows are returning over $500 million annually to shareholders through dividends and share repurchases. The company maintains strong liquidity with a current ratio of 5.8x, significantly exceeding its short-term obligations.

Raymond James pointed to several positive indicators, including KB Home’s 20% year-over-year improvement in construction cycle times, a recent deceleration in new resale listings, and increasing probability of Federal Reserve rate cuts in coming months.

The firm has revised its earnings per share estimates downward, bringing fiscal year 2025 projections to the low end of guidance (8% below previous estimates) and setting fiscal year 2026 below current consensus.

Raymond James believes KB Home took "prudent actions" by reducing base pricing to meet market demand, potentially creating a competitive advantage against competitors who rely heavily on mortgage rate incentives, and maintains the stock is "significantly cash flow positive" with approximately 10% return on equity.

In other recent news, KB Home reported its second-quarter earnings for 2025, with earnings per share (EPS) slightly exceeding expectations at $1.50, compared to the forecasted $1.46. The company’s revenue was in line with projections at $1.5 billion. Despite these positive results, Keefe, Bruyette & Woods lowered its price target for KB Home from $65 to $58, citing concerns over reduced deliveries and lower gross margins. The firm maintained a Market Perform rating, noting that the homebuilder’s valuation approaches historical lows outside of recessions. Meanwhile, UBS reiterated a Buy rating with an $80 price target, praising KB Home’s successful pricing strategy in several markets.

KB Home’s management highlighted challenges such as delays in community openings due to understaffing at municipalities, which impacted sales. However, they expect to recover these sales as delayed communities become operational. The company also announced a revision of its fiscal year 2025 housing revenue guidance to between $6.3 billion and $6.5 billion. KB Home plans to scale back on land investment in favor of share repurchases, having already repurchased $200 million in shares during the second quarter. The company continues to focus on cost management and operational efficiencies to navigate the current housing market challenges.

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