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Investing.com - Wolfe Research lowered its price target on KB Home (NYSE:KBH) to $52.00 from $60.00 on Tuesday, while maintaining an Underperform rating on the homebuilder’s stock.
The firm cited KB Home’s recent order miss, with dollar orders falling 21% compared to Wolfe’s estimate of a 10% decline. Despite KB Home producing slightly better-than-expected income statement metrics, the company reduced its full-year guidance across most metrics, reflecting a clear downshift in demand in recent months.
Wolfe Research expressed concern about KB Home’s fourth-quarter gross margin guidance, which implies a 20 basis point sequential improvement. The firm believes the combination of lower order pricing and higher land costs will likely outweigh benefits from operating leverage and reduced construction costs.
Order average selling prices declined 410 basis points sequentially, with each region showing at least a 1.7% quarter-over-quarter decrease. The Central region experienced a more significant 4.2% quarter-over-quarter decline in average selling prices.
While acknowledging that KB Home’s stock is trading below book value and appears cheap relative to historical averages, Wolfe Research continues to expect KB Home’s returns to trail its peer group, supporting the maintained Underperform rating.
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