Company Performance - KB Home's stock closed at $50.61, reflecting a -4.49% change from the previous day, underperforming the S&P 500's loss of 0.84% [1] - Over the past month, KB Home shares have decreased by 3.74%, while the Construction sector remained flat and the S&P 500 gained 1.44% [1] Upcoming Earnings Report - KB Home is set to release its earnings on June 23, 2025, with projected EPS of $1.45, indicating a 32.56% decline from the same quarter last year [2] - Revenue is expected to be $1.5 billion, representing a 12.55% decrease compared to the corresponding quarter of the previous year [2] Fiscal Year Projections - For the entire fiscal year, earnings are projected at $7.05 per share and revenue at $6.64 billion, reflecting changes of -16.57% and -4.11% respectively from the prior year [3] - Recent analyst estimate revisions suggest evolving short-term business trends, with positive revisions indicating a favorable business outlook [3] Valuation Metrics - KB Home has a Forward P/E ratio of 7.51, which is below the industry average Forward P/E of 9.29, indicating a valuation discount [5] - The current PEG ratio for KB Home is 2.4, compared to the industry average PEG ratio of 1.77, suggesting higher expected earnings growth relative to peers [6] Industry Ranking - The Building Products - Home Builders industry, which includes KB Home, has a Zacks Industry Rank of 224, placing it in the bottom 9% of over 250 industries [6] - The Zacks Rank system indicates KB Home currently holds a rank of 4 (Sell), with a recent EPS estimate decrease of 0.11% [5]

Core Viewpoint - Analysts forecast a significant decline in KB Home's quarterly earnings and revenues, indicating potential challenges for the company in the upcoming earnings release [1]. Group 1: Earnings and Revenue Estimates - KB Home is expected to report earnings of $1.45 per share, reflecting a year-over-year decline of 32.6% [1]. - Anticipated revenues are projected at $1.5 billion, which represents a decline of 12.6% compared to the same quarter last year [1]. - The estimate for 'Total Revenues- Homebuilding' is $1.49 billion, indicating a year-over-year change of -12.6% [4]. - 'Total Revenues- Financial services' is expected to be $6.65 million, suggesting a year-over-year decline of 19.9% [5]. Group 2: Key Metrics and Performance Indicators - Analysts predict 'Backlog - Units' to reach 5,089, down from 6,270 a year ago [5]. - The 'Average selling price' is estimated at $487.12 million, slightly up from $483 million in the same quarter last year [6]. - 'Net orders - Units' are forecasted to be 3,723, compared to 3,997 in the previous year [6]. - 'Unit deliveries - Total Homes' are projected at 3,070, down from 3,523 in the same quarter last year [6]. Group 3: Income and Financial Metrics - 'Operating Income- Homebuilding' is expected to be $124.01 million, down from $188.18 million in the same quarter last year [8]. - 'Homebuilding pretax income' is estimated at $130.44 million, compared to $207.86 million a year ago [8]. - The consensus estimate for 'Financial services pretax income' stands at $10.19 million, down from $13.26 million in the same quarter last year [7]. Group 4: Market Performance - KB Home shares have decreased by 3.7% over the past month, contrasting with a 1.4% increase in the Zacks S&P 500 composite [8]. - The company holds a Zacks Rank 4 (Sell), indicating expectations of underperformance relative to the overall market in the near future [8].

Core Viewpoint - Investors in KB Home should closely monitor the stock due to significant movements in the options market, particularly the high implied volatility of the January 16, 2026 $35 Call option [1] Group 1: Implied Volatility - Implied volatility indicates the market's expectation of future price movement, with high levels suggesting a potential significant move or an upcoming event that could lead to a rally or sell-off [2] - The current high implied volatility for KB Home options may signal a developing trading opportunity, as options traders often seek to sell premium on such options [4] Group 2: Analyst Sentiment - KB Home currently holds a Zacks Rank of 3 (Hold) within the Building Products - Home Builders industry, which is in the bottom 10% of the Zacks Industry Rank [3] - Over the past 60 days, no analysts have increased earnings estimates for the current quarter, while two have lowered their estimates, resulting in a decrease of the Zacks Consensus Estimate from $1.58 to $1.45 per share [3]

Core Viewpoint - KB Home shares have declined approximately 8.4% since the last earnings report, although this performance has outpaced the S&P 500 [1] Group 1: Earnings Report and Estimates - Fresh estimates for KB Home have trended downward over the past month, with the consensus estimate decreasing by 25.3% [2] - The overall outlook indicates a downward shift in estimates, leading to a Zacks Rank of 4 (Sell) for KB Home, suggesting expectations of below-average returns in the coming months [4] Group 2: VGM Scores - KB Home currently holds a subpar Growth Score of D and a Momentum Score of F, while achieving a Value Score of B, placing it in the top 40% for this investment strategy [3] - The aggregate VGM Score for KB Home is C, which is relevant for investors not focused on a single strategy [3]

Financial Performance - Homebuilding revenues for Q1 2025 decreased by 5% year over year to $1.39 billion, with a 9% decrease in homes delivered to 2,770[107]. - Net income for Q1 2025 was $109.6 million, down 21% from the previous year, and diluted earnings per share decreased by 15% to $1.49[107]. - Operating income for Q1 2025 was $127.3 million, down 19% year over year, with operating income as a percentage of revenues at 9.2% compared to 10.8% in the prior year[110]. - Interest income for Q1 2025 was $2.1 million, a decrease from $5.9 million in the same quarter last year, due to lower average balances and interest rates[121]. - Financial services revenues decreased by 22% year-over-year to $4.7 million, primarily due to declines in insurance commissions and title services revenues[140]. - The equity in income of the unconsolidated joint venture for financial services was $4.3 million, down from $7.1 million in the prior year, reflecting a loss in fair value of IRLCs[141]. - In the first quarter of 2025, the company reported revenues of $1.28 billion, with a net income of $106.8 million, reflecting a pretax income of $136.4 million[182]. Sales and Orders - The company experienced a 17% year-over-year decline in net orders, totaling 2,772 for Q1 2025, with a monthly net order pace per community of 3.6 compared to 4.6[108]. - Net orders for Q1 2025 decreased by 17% year-over-year, totaling 2,772, compared to 3,323 in Q1 2024[124]. - The net order value for Q1 2025 was $1,346,067, reflecting a 15% decline from $1,582,191 in Q1 2024[127]. - The cancellation rate increased to 16% in Q1 2025 from 14% in Q1 2024, indicating a slight rise in contract cancellations[130]. - The company implemented targeted sales strategies, including mortgage-related concessions and selective price reductions, to stimulate demand[109]. - The company implemented targeted sales strategies, including mortgage-related concessions, to improve affordability and stimulate demand[125]. Backlog and Inventory - The ending backlog value decreased by 21% year over year to approximately $2.20 billion, reflecting a soft start to the Spring selling season[113]. - Ending backlog of homes decreased by 23% year-over-year to 4,436 homes, with a backlog value of $2,201,933, down 21% from $2,791,744[128]. - The ending community count grew by 7% year-over-year to 255, with an average community count also increasing by 7%[129]. Market Segments - Revenues for the West Coast segment increased by 8% to $601,649, while operating income remained nearly flat at $66,492[134]. - The Southwest segment reported a 3% decline in revenues to $312,879, but operating income increased by 5% to $58,775[135]. - Central segment revenues for the three months ended February 28, 2025, were $275.6 million, a 14% decrease from $320.5 million in the prior year[136]. - Southeast segment revenues for the same period were $196.9 million, down 24% from $259.8 million year-over-year[137]. - The backlog value decline was observed across all homebuilding reporting segments, with the Southeast segment experiencing a 25% decrease[128]. - Operating income for the Central segment declined 34% to $25.5 million, while the Southeast segment's operating income fell 59% to $13.1 million[136][137]. - The average selling price in the Central segment increased by 1% to $367,000, while in the Southeast segment, it decreased by 4% to $400,200[136][137]. Investments and Liquidity - Investments in land and land development increased by 57% year over year to $920.3 million, while share repurchases totaled 753,939 shares at a cost of $50 million[112]. - Cash and cash equivalents totaled $267.8 million as of February 28, 2025, down from $598.0 million at November 30, 2024[149]. - Total liquidity decreased to $1,249,573 thousand as of February 28, 2025, compared to $1,679,713 thousand on November 30, 2024[157]. - The company plans to continue investing in land positions within attractive submarkets throughout 2025, depending on market conditions[154]. - The carrying value of lots owned or controlled under land option contracts increased by 7% to $5,942,547 thousand as of February 28, 2025, compared to $5,528,020 thousand on November 30, 2024[155]. - The total number of lots owned or controlled increased by 2% to 78,233 lots as of February 28, 2025, from 76,703 lots on November 30, 2024[155]. - The company had $100.0 million in cash borrowings under the Credit Facility as of February 28, 2025[160]. Future Outlook - The company expects housing revenues for the second quarter of 2025 to be between $1.45 billion and $1.55 billion, compared to $1.70 billion in the same quarter of 2024[195]. - The anticipated average selling price for homes in the second quarter of 2025 is approximately $488,000, compared to $483,000 in the prior year[195]. - The company projects a homebuilding operating income margin of approximately 8.5% for the second quarter of 2025, down from 11.1% in the same quarter of 2024[195]. - For the full year 2025, the company expects housing revenues to range from $6.60 billion to $7.00 billion, compared to $6.90 billion in 2024[195]. - The company plans to continue investing in land positions while anticipating a sequential decrease in land-related investments in the second quarter of 2025[191]. - The effective tax rate for the second quarter of 2025 is expected to be approximately 24.0%, compared to 23.8% in the same quarter of 2024[195]. Risks and Challenges - The company is subject to risks including general economic conditions, population growth, and conditions in capital markets[199]. - The company faces potential increases in material and trade costs, particularly for ENERGY STAR certified homes[199]. - The company is impacted by changes in interest rates set by the Federal Reserve, which may affect mortgage loans[200]. - The company must navigate competition from other sellers of new and resale homes[200]. - The company is exposed to risks from regulatory instability and changes in government policies affecting the housing market[200]. - The company has to manage the availability and cost of land in desirable areas for new home developments[200]. - The company is at risk from disruptions in supply chains due to geopolitical conflicts and sanctions[200]. - The company has to comply with regulatory requirements that may incur additional costs or liabilities[200].

Company Overview - KB Home operates as a homebuilding company in the United States, constructing and selling various types of homes, including single-family residential homes, townhomes, and condominiums, primarily targeting first-time and move-up homebuyers [2] Financial Performance - Over the past thirty days, four analysts have reduced their earnings estimates for KB Home for both the current year and the next year, leading to a Zacks Rank of 5 (Strong Sell) [3] - The Zacks Consensus Estimate for the current year has decreased from $9.02 to $7.61, while next year's estimate has fallen from $10.70 to $8.17, indicating a projected earnings contraction of 9.94% on flat revenue of $6.93 billion this year [3] Market Conditions - CEO Jeffrey Mezger noted that the downturn is attributed to consumer affordability concerns and uncertainties related to macroeconomic and geopolitical issues, resulting in a cautious approach to homebuying decisions [4] - The typically strong spring selling season experienced muted demand despite healthy traffic in KB Home communities, reflecting the hesitancy among potential buyers [4] Industry Context - KB Home is positioned in the Building Products – Home Buildings industry, which ranks in the bottom 17% of the Zacks Industry Rank [5] - There are two stocks within this industry that are performing better, specifically Zacks Rank 2 (Buy) stocks Dream Finders Homes and Persimmon [5]

Group 1 - The article discusses KB Home (NYSE: KBH) and its stock performance, noting that it has provided low-single digit returns since December 2023, in contrast to the S&P 500's gains of over 20% during the same period [1] - The author previously rated KB Home's stock as neutral due to its high valuation, indicating a cautious outlook on the company's growth potential [1] Group 2 - The focus of the analysis is on GARP (Growth at Reasonable Price) opportunities within the industrial, consumer, and technology sectors, suggesting a strategic investment approach [1]

Group 1 - The core thesis for KB Home (KBH) is that macroeconomic headwinds create uncertainty in the company's earnings outlook despite operational efficiency improvements [1] - The analyst assigned a hold rating to KB Home in January, indicating a cautious stance on the stock's performance [1] Group 2 - The investment approach focuses on identifying undervalued companies with long-term growth potential, emphasizing value investing principles [1] - The strategy involves purchasing quality companies at a discount to their intrinsic value and holding them for long-term compounding of earnings and shareholder returns [1]

Core Viewpoint - KB Home (KBH) reported disappointing fiscal first-quarter 2025 results, with earnings and total revenues missing estimates and declining year over year [1][4] Financial Performance - Adjusted earnings per share (EPS) were $1.49, missing the Zacks Consensus Estimate of $1.56 by 4.5%, and down from $1.76 in the prior year [4] - Total revenues were $1.392 billion, missing the consensus mark of $1.503 billion by 7.4% and down 5.2% year over year [4] Segment Analysis - Homebuilding segment revenues were $1.387 billion, a decline of 5.1% from $1.462 billion in the prior year, with homes delivered decreasing by 9% to 2,770 units [5] - The average selling price (ASP) increased by 4.3% year over year to $500,700 [5] - Net orders fell 17% year over year to 2,772 units, with the value of net orders decreasing to $1.346 billion from $1.582 billion [6] Market Conditions - The results reflect a soft housing market, with homebuyers facing affordability issues due to high mortgage rates and ongoing macroeconomic uncertainties [2] - The company lowered its fiscal 2025 guidance due to these market uncertainties and a lower net orders level [2][12] Financial Position - As of February 28, 2025, KB Home had cash and cash equivalents of $267.8 million, down from $598 million at the end of fiscal 2024 [10] - The debt-to-capital ratio increased to 30.5% from 29.4% at the end of fiscal 2024 [10] Guidance Adjustments - For fiscal 2025, housing revenues are now expected to be in the range of $6.60-$7 billion, down from $7-$7.50 billion [12] - The expected housing gross margin is now between 19.2% and 20%, down from the previous range of 20-21% [13]

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