On Friday, Keefe, Bruyette & Woods maintained a Market Perform rating on KB Home (NYSE:KBH), but reduced the price target from $85.00 to $76.00. The adjustment followed KB Home's fourth-quarter earnings report, which prompted the firm to revise its forward estimates downward by approximately 4%. The revision was primarily attributed to a projected decrease in gross margin by 30-50 basis points and a 1-2% drop in expected home deliveries.
KB Home's fourth-quarter earnings per share (EPS) outperformed expectations due to lower selling, general and administrative expenses (SG&A) and a reduced share count. However, the company's gross margin fell short, coming in at 20.9% compared to the anticipated 21.1% by Keefe, Bruyette & Woods and the consensus of 21.3%.
The firm also noted that while orders had increased by 41% year-over-year, surpassing forecasts of a 32-40% rise, higher interest rates were beginning to affect buyer demand. Management at KB Home has predicted flat orders for the first quarter of 2025, contrasting with the double-digit decline observed so far in the quarter.
The report highlighted that despite the current challenges, KB Home's stock appears modestly attractive, trading at 1.2 times its current book value and 1.1 times its forward book value. These figures are in line with those of mid-cap peers in the industry. Nevertheless, Keefe, Bruyette & Woods expressed a preference for larger builders over KB Home, leading to the decision to lower the price target.
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