On Thursday, Evercore ISI increased the price target for KB Home (NYSE:KBH) shares to $86 from the previous $78 while maintaining an Outperform rating on the stock. This adjustment follows KB Home's second quarter earnings for fiscal year 2024, which surpassed analyst expectations.
The homebuilder reported an adjusted diluted earnings per share (EPS) of $2.16, which excluded $1.2 million in abandonment charges. This figure exceeded Evercore ISI's estimate of $1.86 as well as the consensus estimate of $1.72.
The company's financial performance demonstrated robustness in key areas during the quarter. Gross margins came in at 21.2%, slightly above the estimated 21.0%, and selling, general and administrative expenses (SG&A) were reported at 10.1%, better than the anticipated 10.5%. KB Home's average selling price (ASP) was $483,000, aligning with forecasts, and the number of closings stood at 3,523, close to the estimate of 3,478.
KB Home also reported an increase in orders, with a year-over-year growth of 2%, against an expectation of no growth. The company's management commented on the resilience of buyers in the current market. Furthermore, the company has either reiterated or raised its guidance for most metrics for the full fiscal year 2024.
As a result of the strong quarterly performance, Evercore ISI has revised its EPS estimates for KB Home for fiscal years 2024 and 2025 to $8.47 (up from $8.22) and $9.17 (up from $8.71), respectively. The revised price target of $86 is based on a 10.5 times multiple of the firm's forward twelve months earnings estimate.
In other recent news, KB Home has outperformed its Q2 guidance with significant developments, including year-over-year growth in net orders and value. The company's total revenues exceeded $1.7 billion, with earnings per share reaching $2.15. This strong performance has been backed by a backlog valued at over $3 billion and improved build times, despite challenges such as rising mortgage rates.
In terms of capital allocation, KB Home has displayed a proactive approach, with a minimum of $250 million in share repurchases and over $1 billion returned to stockholders. This confidence in its continued growth and profitability is also evident in the company's strategic land investments and focus on build-to-order sales, which contribute to a positive outlook.
For the current fiscal year, KB Home anticipates a revenue of $6.8 billion. While the company faces potential challenges like increased resale inventory in certain markets and delays in community openings, it continues to aim for growth, with plans to reduce build times to a range of four to five months. These recent developments underscore KB Home's strategic initiatives aimed at long-term success.
InvestingPro Insights
KB Home (NYSE:KBH) has shown a promising financial trajectory as reflected in the recent earnings beat for Q2 2024. Investors following the stock may find additional context through InvestingPro data that underscores the company's current market position. With a market capitalization of $5.12 billion and an adjusted P/E ratio for the last twelve months as of Q2 2024 at 8.44, KB Home presents a compelling valuation picture. The company's revenue for the same period stands at approximately $6.44 billion, despite a slight decline in revenue growth. Moreover, the robust gross profit margin of 21.89% aligns closely with the gross margins reported in the recent earnings.
Two InvestingPro Tips that may interest shareholders include the company's strong free cash flow yield, which supports the valuation, and its impressive track record of maintaining dividend payments for 39 consecutive years, signifying a reliable return to investors. Additionally, it's noteworthy that analysts predict KB Home will be profitable this year, a sentiment that likely contributes to the positive outlook from Evercore ISI.
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