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On Thursday, Morgan Stanley (NYSE:MS) adjusted its outlook on KE Holdings (NYSE: BEKE), reducing the price target from the previous $27.00 to $24.00, yet reaffirming an Overweight rating on the company’s stock. The revision comes as the firm’s analyst, Steven Tsai, recalibrated earnings projections in light of several economic factors. According to InvestingPro data, KE Holdings currently trades at a P/E ratio of 38.37x, with a market capitalization of approximately $23 billion.
Tsai’s assessment pointed to a series of challenges impacting KE Holdings, including general macroeconomic uncertainty and specific declines in revenue streams such as financial services and the company’s EH fast-selling services. Additionally, there has been an increase in EH fixed costs. These factors have led to a downward revision of the non-GAAP EPS estimates by 11% for 2025, 9% for 2026, and 8% for 2027. Despite these challenges, InvestingPro data shows the company achieved impressive revenue growth of 20.16% in the last twelve months, though maintaining relatively modest gross profit margins of 24.55%.
Despite the adjustments, Morgan Stanley’s non-GAAP net margin estimates for KE Holdings remain positive, forecasted at 7.8% for 2025, 8.3% for 2026, and 8.6% for 2027. The new price target is based on a 22 times multiple of the company’s estimated 2025 non-GAAP earnings per share, which the analyst believes is reasonable.
Tsai justifies the Overweight rating with the expectation of a compounded annual growth rate (CAGR) in earnings of 18% from 2025 to 2028. The revised price target reflects a cautious yet optimistic view of KE Holdings’ financial performance over the next several years, considering the current economic landscape and internal financial dynamics. For deeper insights into KE Holdings’ valuation and growth prospects, including exclusive financial health scores and additional analyst forecasts, check out the comprehensive Pro Research Report available on InvestingPro.
In other recent news, KE Holdings reported first-quarter results that exceeded analyst expectations. The company announced a net revenue increase of 42.4% year-over-year, reaching RMB23.3 billion ($3.2 billion), surpassing the consensus estimate of RMB21.37 billion. Adjusted earnings per ADS were RMB1.24 ($0.17), exceeding projections of RMB1.04. KE Holdings experienced significant growth in its business segments, with a 34% year-over-year rise in gross transaction value to RMB843.7 billion ($116.3 billion). Existing home transactions increased by 28.1%, while new home transactions surged by 53%. Despite the positive financial results, the number of mobile monthly active users declined to 44.5 million from 47.7 million the previous year. Management expressed confidence in the company’s long-term prospects but indicated a more cautious approach to certain investments to enhance return on investment. These developments highlight the company’s continued expansion in China’s real estate services market.
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