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On Tuesday, RBC Capital Markets adjusted its outlook on KB Home (NYSE:KBH), reducing the homebuilder’s price target from $67.00 to $63.00, while maintaining a Sector Perform rating on the stock. According to InvestingPro data, KB Home is currently trading at $59.11, with analysis suggesting the stock is undervalued despite recent challenges. The revision followed KB Home’s first-quarter results, which revealed a significant shortfall in orders and a less optimistic guidance for fiscal year 2025 concerning deliveries and margins.
The company’s second-quarter guidance also indicated weakness, coming after recent reductions in home prices. RBC Capital’s analyst noted that while sales have improved following the price cuts by KB Home, there remains a risk to the fiscal year 2025 forecasts. This is predicated on the expectation of an increase in margins in the second half of the year and a healthier sales pace. InvestingPro analysis shows the company maintains a healthy gross profit margin of 21.71% and trades at an attractive P/E ratio of 6.78, suggesting potential value for investors willing to weather near-term volatility.
Despite the lowered estimates, RBC Capital has chosen to maintain its Sector Perform rating for KB Home. The rationale behind this decision is that the current stock multiple already accounts for much of the decline in estimates. However, the analyst foresees near-term downside risk to the stock.
The revised price target of $63 reflects the new earnings per share estimate set by RBC Capital for fiscal year 2025, which has been reduced by 13% to $6.98. This adjustment is a direct response to the first-quarter order miss and the subdued fiscal year 2025 guidance provided by KB Home. The analyst’s commentary highlighted the challenges faced by the homebuilder and the potential for margin improvement and sales acceleration in the latter half of the year.
In other recent news, KB Home reported its financial results for the first quarter of fiscal year 2025, with earnings per share (EPS) of $1.49 and revenue of $1.39 billion, both falling short of analysts’ forecasts. The company’s housing revenues saw a 5% year-over-year decrease, and home deliveries dropped by 9% compared to the previous year. Following the earnings announcement, KB Home revised its full-year 2025 revenue guidance to a range of $6.6 billion to $7.0 billion. Wolfe Research adjusted its outlook on KB Home, reducing the price target from $68 to $60, while maintaining an Underperform rating, citing skepticism about the company’s guidance on gross margins. Keefe, Bruyette & Woods maintained a Market Perform rating with a price target of $76, despite noting that the company’s first-quarter earnings and 2025 guidance fell short due to lower deliveries and increased expenses. These developments come amid broader industry challenges with demand and affordability, affecting KB Home’s performance and outlook.
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