Group 1 - The stock of KB Home (KBH) is experiencing significant attention due to high implied volatility in the options market, particularly the Dec 19, 2025 $25.00 Call option [1] - Implied volatility indicates the market's expectation of future price movement, suggesting that investors anticipate a significant change in KB Home's stock price, potentially due to an upcoming event [2] - KB Home currently holds a Zacks Rank 4 (Sell) in the Building Products - Home Builders industry, which is in the bottom 8% of the Zacks Industry Rank, with recent analyst estimates showing a decrease from $1.70 to $1.58 per share for the current quarter [3] Group 2 - The high implied volatility surrounding KB Home may indicate a developing trading opportunity, as options traders often seek to sell premium on such options to capture decay, hoping the stock does not move as much as expected by expiration [4]

Company Performance - KB Home's stock closed at $60.74, reflecting a +1.49% change, outperforming the S&P 500's loss of 1.22% on the same day [1] - Over the last month, KB Home's shares decreased by 8.51%, underperforming the Construction sector's loss of 6.27% and the S&P 500's loss of 2.31% [1] Earnings Projections - The upcoming earnings report for KB Home is projected to show earnings per share (EPS) of $1.58, which is a 10.23% decrease from the same quarter last year [2] - Revenue is estimated to be $1.5 billion, indicating a 2.37% increase compared to the same quarter of the previous year [2] Annual Estimates - For the annual period, earnings are anticipated to be $8.42 per share, reflecting a -0.36% change from last year, while revenue is expected to be $7.21 billion, signifying a +3.98% increase [3] - Changes in analyst estimates for KB Home are crucial as they indicate the evolving nature of near-term business trends [3] Valuation Metrics - KB Home is currently trading with a Forward P/E ratio of 7.11, which is lower than the industry average of 7.84, suggesting it is trading at a discount [6] - The company has a PEG ratio of 0.86, compared to the industry average PEG ratio of 0.89 [6] Industry Context - The Building Products - Home Builders industry ranks in the bottom 10% of all industries, with a current Zacks Industry Rank of 227 [7] - The Zacks Industry Rank measures the strength of individual industry groups, indicating that top-rated industries outperform the bottom half by a factor of 2 to 1 [7]

Group 1: Stock Performance - KB Home (KBH) closed at $62.83, marking a +1.18% move from the prior day, outperforming the S&P 500's daily loss of 0.43% [1] - Over the past month, KB Home shares have lost 8.47%, lagging behind the Construction sector's loss of 5.29% and the S&P 500's gain of 2.6% [1] Group 2: Earnings Forecast - KB Home is forecasted to report an EPS of $1.58, reflecting a 10.23% decrease from the same quarter last year [2] - Revenue is expected to be $1.5 billion, showing a 2.37% increase compared to the year-ago quarter [2] Group 3: Full Year Estimates - Analysts expect earnings of $8.42 per share and revenue of $7.21 billion for the full year, indicating changes of -0.36% and +3.98% respectively from last year [3] Group 4: Analyst Estimates and Rankings - Recent adjustments to analyst estimates for KB Home indicate changing business trends, with positive revisions suggesting analyst optimism [4] - The Zacks Rank system currently rates KB Home at 4 (Sell), with a 2.92% decrease in the EPS estimate over the last 30 days [6] Group 5: Valuation Metrics - KB Home has a Forward P/E ratio of 7.38, which is lower than its industry's Forward P/E of 7.94, indicating a valuation discount [6] - The PEG ratio for KB Home is currently 0.89, compared to the industry average PEG ratio of 0.91 [7] Group 6: Industry Context - The Building Products - Home Builders industry, part of the Construction sector, has a Zacks Industry Rank of 244, placing it in the bottom 3% of over 250 industries [7][8]

Backlog and Revenue Distribution - Ending backlog as of November 30, 2024, includes homes under sales contract but not yet delivered, representing potential future housing revenues[46] - Net orders distribution in 2024: Q1 25%, Q2 30%, Q3 24%, Q4 21%[50] - Homes delivered distribution in 2024: Q1 21%, Q2 25%, Q3 26%, Q4 28%[50] - Housing revenues distribution in 2024: Q1 21%, Q2 25%, Q3 25%, Q4 29%[50] Employee Statistics - Company had 2,384 full-time employees as of November 30, 2024, up from 2,205 in 2023[51] - Turnover rate in 2024 was 18%, with 15% voluntary and 3% involuntary turnover[52] Sustainability and Energy Efficiency - Company achieved over 200,000 ENERGY STAR certified new homes built by 2024, more than any other builder in the nation[63] - ENERGY STAR certified homes save homeowners an estimated average of $1,400 annually on utility bills compared to typical resale homes[64] - Most model homes and sales offices in California were powered by solar energy as of November 30, 2024[65] - All-electric homes produce approximately 3,800 pounds less CO2 per year compared to dual-fuel homes[65] - The company achieved a HERS Index score of 45 in 2024, a year earlier than the 2025 target, reducing GHG emissions by 0.5 metric tons per year or 8% compared to the 2020 baseline of 6 metric tons per year[66] - Over 26,000 WaterSense labeled and Water Smart homes have been built, with 1.2 million WaterSense labeled fixtures installed, saving an estimated 2.1 billion gallons of water annually[70] - The company committed to building WaterSense labeled homes in all future Arizona, California, and Nevada communities starting July 2022[69] - WaterSense labeled products used in homes are at least 20% more water-efficient compared to non-labeled products[68] Awards and Recognitions - The company received the 2024 ENERGY STAR Market Leader Awards, setting a new industry record with 30 awards, more than any other homebuilder[71] - The company was the only national homebuilder to receive the 2024 WaterSense Sustained Excellence Award, marking the 14th consecutive year of recognition[71] - The company was named to Newsweek's 2025 list of America's Most Responsible Companies, the only homebuilder to make the list five years in a row[71] - The company was ranked in the top five percent of USA Today's 2024 List of America's Climate Leaders, the highest-ranked homebuilder[71] Corporate Governance - The company's board of directors is 90% independent, with 50% being women or racial/ethnic minorities, and an average tenure of approximately seven years[78] Debt and Interest Rate Management - The company does not use interest rate derivative instruments to manage exposure to changes in interest rates[300] - Fixed rate debt obligations for 2027 and 2029 are $300,000 each, with a total fixed rate debt of $1,340,000 as of November 30, 2024[301] - Variable rate debt is $360,000 with a weighted average effective interest rate of 6.0% as of November 30, 2024[301] - Each 100 basis-point increase in the interest rate would increase the interest incurred by approximately $3.6 million per year for variable rate debt[301] - Fixed rate debt obligations for 2027 and thereafter are $300,000 and $1,040,000 respectively, with a total fixed rate debt of $1,340,000 as of November 30, 2023[304] - Variable rate debt is $360,000 with a weighted average effective interest rate of 6.8% as of November 30, 2023[304] - KBHS manages interest rate risk through best efforts forward sale commitments with secondary market investors[306] - KBHS does not engage in speculative or trading derivative activities, and its entire loan portfolio is held for sale[306] Market and Operational Risks - The company's operational and investment concentration is in California markets, with a focus on first-time homebuyers and higher-income consumers[302] - The company faces risks related to income tax expense volatility associated with stock-based compensation[303] - The company is exposed to risks from information technology failures and data security breaches[303]

Company Analysis - KB Home has demonstrated resilience in growing net orders and improving operational efficiency [1] - The company faces visible macroeconomic challenges that create uncertainty in its outlook [1] Investment Approach - The analyst employs a blend of value investing principles and a focus on long-term growth [1] - The strategy involves buying quality companies at a discount to their intrinsic value and holding them for long-term compounding of earnings and shareholder returns [1] Disclosure - The analyst has no stock, option, or derivative positions in the mentioned companies and no plans to initiate such positions within the next 72 hours [2] - The article expresses the analyst's own opinions and is not influenced by compensation or business relationships with the mentioned companies [2]

Inflation and Market Sentiment - Investors welcomed a second cool inflation report, easing concerns over higher prices [1] - Positive quarterly earnings from major banks (JPMorgan Chase, Goldman Sachs, Citigroup, Wells Fargo) contributed to the positive market sentiment [1] - The latest jobs report pushed the 10-year treasury yield to a 14-month high near 5%, but cool inflation data is expected to alleviate upward pressure on yields [2] - Light inflation figures may help relieve weakness in rate-sensitive market areas like small-caps, with the Russell 2000 having only 23% of its constituents trading above the 50-day moving average [2] Inflation Data Breakdown - The producer price index (PPI) rose 3.3% year-over-year, up from 3% in November but below the median forecast [4] - Wholesale prices increased 0.2% month-over-month, less than the 0.4% projection [4] - Core PPI (excluding food and energy) rose 3.5% year-over-year, lower than the 3.8% expected, and was virtually unchanged month-over-month [5] - The consumer price index (CPI) showed a 0.4% monthly increase and a 2.9% year-over-year rise, both in line with estimates [7] - Core CPI (excluding food and energy) increased 3.2% year-over-year, slightly better than the 3.3% projection, and rose 0.2% month-over-month, lower than expectations [7] Market Volatility and Stocks - Market volatility (VIX) plunged nearly 9% in early trading Wednesday, potentially offering lower-risk entry points in leading stocks [8] - Homebuilders, particularly the SPDR S&P Homebuilders ETF (XHB), rose more than 4% this week as markets rotated into rate-sensitive areas [9] - KB Home (KBH) reported strong Q4 results, with earnings of $2.52 per share (2.86% above estimates) and revenues of $2 billion, leading to a nearly 5% stock rise [10] Big Banks' Performance - JPMorgan Chase (JPM) delivered Q4 earnings of $4.81 per share, a 19.35% surprise versus estimates, with revenues of $42.77 billion (4.4% above consensus) [11] - JPMorgan shares advanced more than 50% over the past year and were up over 1% in early trading Wednesday [12] - Wells Fargo (WFC), Goldman Sachs (GS), and Citigroup (C) also reported quarterly earnings beats of 5.97%, 48.1%, and 7.2%, respectively [13] - All four banks are part of the Zacks Financials – Investment Bank industry, ranked in the top 5% of Zacks Ranked Industries [16] Industry Insights - Quantitative research shows that roughly half of a stock's price movement can be attributed to its industry group [17] - The top 50% of Zacks Ranked Industries outperforms the bottom 50% by more than 2 to 1, highlighting the importance of targeting leading stocks in top-ranked industries [17]

Dr Duru's Background and Expertise - Dr Duru has been blogging about financial markets since 2000, with experience spanning the dot-com bubble, financial crisis, and COVID-19 pandemic [1] - His blog "One-Twenty Two" provides unique perspectives on financial markets, challenging conventional wisdom and covering stocks, options, currencies, Bitcoin, and more [1] - Dr Duru holds a BS in Mechanical Engineering and an honors degree in Values, Technology, Science and Society from Stanford University, as well as a PhD in Engineering-Economic Systems [1] - His professional experience includes independent consulting in operations research, management consulting in product development, price optimization software development, and business intelligence/data analytics [1] Blog Content and Approach - The blog leverages both technical and fundamental analysis for short-term and long-term trading and investing strategies [1] - Some of Dr Duru's ideas and analyses are featured on Seeking Alpha [1] - The blog aims to provide a different narrative for students and fans of financial markets [1] Consulting Practice - Dr Duru operates a consulting practice focused on analytics, accessible at https://ahan-analytics drduru com/ [1]

Financial Performance - Homes delivered increased 17% to 3,978 units, and the average selling price rose 3% to $501,000 [1] - Homebuilding operating income grew 27% to $229.1 million, and homebuilding operating margin increased by 60 basis points to 11.5% [1] - Fourth-quarter earnings per share (EPS) were $2.52, with revenue up 19% year-over-year to $2 billion, both exceeding analysts' forecasts [4] Market and Demand Trends - New orders climbed by about 40% due to continuing demand and improved market conditions, despite ongoing mortgage interest rate challenges [1] - CEO Jeffrey Mezger noted that homeownership demand continued to grow and market conditions have improved [5] Strategic Investments - The company spent over $2.8 billion in 2024 on land purchases and development, with plans to increase investment again in 2025 [1] Stock Performance - KB Home shares rose over 3% to $66.16 in intraday trading Tuesday and have gained about 10% over the past 12 months [1] - Trading volume for KB Home shares was 2.76 million on Tuesday [2]

Earnings Performance - The company reported earnings of $2.52 per share, beating the consensus estimate of $2.44 per share [1] - The stock surged by 4.17% to $66.75 in early trading following the earnings report [5] Deliveries and Orders - KB Home deliveries grew by 17% year-on-year, exceeding expectations [2] - Orders for the quarter were 2,688, up 41% year-on-year, surpassing the Street's expectations of 32% growth [4] - Management expects orders to be flat year-on-year in Q1 2025, with a decline of 250 orders (3%) anticipated for the full year 2025 [4] Revenue and Margin Guidance - The company guided to housing revenue of $1.45 billion to $1.55 billion for Q1 and $7 billion to $7.5 billion for the full year [3] - Midpoint earnings guidance is $1.58 per share for Q1 and $8.41 per share for the full year [3] - Management's margin guidance for Q1 was better than feared, though risks remain due to assumptions on flat incentives, direct cost reductions, and cycle times [5] Analyst Ratings - Keefe, Bruyette & Woods maintained a Market Perform rating with a price target of $85 [6] - RBC Capital Markets reiterated a Sector Perform rating with a price target of $67 [6] Market Strategy - Management noted higher rates and rate volatility impacting homebuyer demand, leading to the use of incentives to maintain sales pace [2]

KB Home's Fiscal Q4 2024 Performance - KB Home reported strong fiscal Q4 2024 results with both revenues and earnings surpassing expectations, showcasing resilience in a fluctuating housing market [1] - Adjusted EPS of $2.52 beat the Zacks Consensus Estimate by 2.9% and increased 36.2% YoY, while total revenues of $2 billion topped the consensus by 0.4% and grew 19.5% YoY [4] - Shares surged 10.9% in after-market trading, reflecting investor confidence driven by faster build times and a strong order book [2] Homebuilding Segment Performance - Homebuilding revenues grew 19.7% YoY to $1.993 billion, with 3,978 homes delivered, up 17% YoY, exceeding the projected 3,850 units [5] - Average selling price (ASP) increased 3% YoY to $501,000, slightly below the projected $511,600, while build times were reduced by 28% YoY [5] - Net orders surged 41% YoY to 2,688 units, with order value also up 41% to $1.32 billion, though below the projected 3,008 units or $1.51 billion [6] - The cancellation rate improved to 17% of gross orders, down from 28% YoY, and absorption rate increased to 3.5 monthly net orders per community from 2.7 [6] Financial Metrics and Margins - Housing gross margin (excluding inventory-related charges) improved 10 bps YoY to 20.9%, despite challenges like elevated mortgage rates and material costs [8] - SG&A expenses as a percentage of housing revenues decreased 50 bps to 9.4%, reflecting improved operating leverage [9] - Homebuilding operating margin (excluding inventory-related charges) rose 60 bps to 11.5%, exceeding the projected 11.3% [9] Financial Services Segment - Financial services revenues declined 23.8% YoY to $6.85 million, while pretax income increased 7.7% YoY to $13.1 million, driven by higher equity income from the mortgage banking joint venture [10] Fiscal 2024 Highlights - Full-year revenues grew 8.1% YoY to $6.93 billion, with EPS rising over 20% to $8.45 [11] - Homes delivered increased 7% to 14,169, with ASPs up to $486,900 from $481,300 YoY, while adjusted gross margins were 21.1%, down 30 bps [11] Financial Position and Share Repurchases - Cash and cash equivalents stood at $598 million as of Nov. 30, 2024, down from $727.1 million at fiscal 2023-end, with total liquidity of $1.68 billion [12] - Debt-to-capital ratio improved to 29.4% from 30.7% at fiscal 2023-end [12] - The company repurchased 4,725,181 shares for $350 million in fiscal 2024, with $700 million remaining under the repurchase authorization [13] Fiscal 2025 Guidance - Housing revenues are projected to be between $7-$7.50 billion, with ASPs estimated at $488,000-$498,000 [14] - Housing gross margin is expected to be 20%-21%, with operating margin projected at 10.7% and SG&A expenses at 9.6%-10% of housing revenues [14][15] - The effective tax rate is estimated at 24%, with the ending community count expected to be within 250 [15] Industry Comparisons - Lennar Corporation reported weak Q4 2024 results, with earnings and revenues missing estimates and declining YoY due to high mortgage rates and low ASPs [17] - Acuity Brands reported mixed Q1 2025 results, with earnings beating estimates for the 19th consecutive quarter but net sales missing expectations [18] - RPM International reported strong Q2 2025 results, with earnings and sales beating estimates and increasing YoY, driven by record adjusted EBIT and reduced interest expenses [19][20]