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On Tuesday, Wolfe Research adjusted its outlook on KB Home (NYSE:KBH), reducing the company’s price target from $68.00 to $60.00, while maintaining an Underperform rating on the stock. The revision followed KB Home’s release of its first-quarter 2025 financial results, which did not meet market expectations. According to InvestingPro data, the stock currently trades at $59.1, near its 52-week low, though analysis suggests the company may be undervalued based on its Fair Value metrics.
KB Home reported a significant year-over-year decline in Order Dollars of 15%, a stark contrast to Wolfe Research’s anticipation of a 2% decrease and the company’s own guidance, which predicted flat results. This shortfall was a standout in the context of the broader industry’s challenges with demand and affordability. Despite these challenges, the company maintains strong fundamentals with a P/E ratio of 6.78 and healthy return on equity of 17%.
The company’s response to the market conditions included intraquarter price adjustments, which were acknowledged by Wolfe Research. However, despite these changes, the pace of sales absorption has improved but remains lower than the average seen in the second quarter of 2024. Additionally, KB Home indicated a slower start to the spring selling season compared to previous years. InvestingPro subscribers can access 12 additional key insights about KB Home, including detailed analysis of its market position and financial health score of GOOD.
Wolfe Research expressed skepticism regarding KB Home’s guidance that Gross Margins would remain stable from the second to the fourth quarter of 2025. This outlook was seen as potentially overly optimistic, given that the price adjustments occurred late in the first quarter and the company is likely to face increasing land costs as the year progresses.
Despite a general downturn in valuations for the sector, KB Home’s shares continue to trade at a premium of approximately 10% compared to its small-to-mid-cap peers. Wolfe Research’s revised price target of $60 reflects a more cautious view of the company’s financial prospects amid the current market challenges. The company maintains strong financial metrics with a current ratio of 6.32 and moderate debt levels, while delivering 25% dividend growth in the latest period. For comprehensive analysis including Fair Value estimates and growth projections, visit InvestingPro.
In other recent news, KB Home reported its financial results for the first quarter of fiscal year 2025, revealing that both earnings per share (EPS) and revenue fell short of analysts’ expectations. The company’s EPS was $1.49, below the forecasted $1.59, while revenue came in at $1.39 billion against a projected $1.5 billion. These results led to a notable decline in KB Home’s stock following the earnings announcement. Keefe, Bruyette & Woods maintained a Market Perform rating on KB Home, with a steady price target of $76, despite the company’s first-quarter performance and revised 2025 guidance being below expectations.
The firm noted that KB Home’s year-over-year orders declined by 17%, more than the expected flat to 2% decrease. The company responded to market challenges by reducing prices in half of its communities, which helped stabilize and improve sales rates. However, management revised its 2025 fiscal year guidance downwards, with the full-year EPS now expected to be $7.22, compared to the previous estimate of $8.25. Analysts at Keefe, Bruyette & Woods anticipate a negative market reaction to these developments, citing challenges of affordability and macroeconomic uncertainties affecting demand in the housing market.
Additionally, KB Home revised its FY2025 housing revenue guidance to a range of $6.6 billion to $7.0 billion. The company expects the average selling price to be between $480,000 and $495,000. Despite these challenges, KB Home’s CEO highlighted strong performance in certain markets, particularly Las Vegas, and expressed confidence in the company’s ability to navigate the current environment.
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