Welcome back to Squawk on the Street. Real estate one of the worst performing sectors on the year behind just health care and consumer staples. All underperformers.Home wielders across the board remain in correction territory which means they're 10% or more from their 52- week highs. Lenar is the worst of the group. And then watch KB Home shares today reducing fullear sales guidance due to lower prices.The company COO saying on the call they're not seeing the uptick in demand they'd expect given the recent ...

Core Viewpoint - The real estate sector is currently one of the worst-performing sectors, with homebuilders in correction territory, indicating a decline of 10% or more from their 52-week highs [1][2]. Company Performance - KB Home reported a strong quarter, beating all key performance indicators (KPIs) including deliveries, revenue, gross margin, operating margin, and earnings per share (EPS) [3]. - Despite a slight reduction in their sales forecast, KB Home noted stabilization in the housing market, particularly in key markets like Florida and Texas [4]. - The company is implementing significant incentives to stimulate demand, which has led to a decrease in average selling prices (ASPs) [6]. Market Outlook - There is a belief that the recent cuts in estimates by KB Home and Lenar may be the final adjustments, suggesting a potential bottoming out of the market [4]. - The outlook for 2026 is considered to be much better for housing compared to 2025, with increasing conviction in this perspective [5]. - If mortgage rates stabilize or decline, it could significantly enhance profitability for builders, with a projected 30% upside for KB Home under current rate conditions [7]. Industry Trends - Builders are currently facing pressure to lower prices to stimulate demand, with a noted year-on-year decline of 9% in ASPs for Lenar [5]. - The industry is optimistic about the potential for a strong off-season later in the year, with bullish sentiments across various builders [9].

Core Insights - KB Home (KBH) reported third-quarter fiscal 2025 results with earnings and total revenues exceeding Zacks Consensus Estimates but showing a year-over-year decline [1][4][9] Financial Performance - Adjusted earnings per share (EPS) for the quarter were $1.61, beating the consensus estimate of $1.50 by 7.3%, down from $2.04 in the same quarter last year [4][9] - Total revenues reached $1.62 billion, surpassing the consensus mark of $1.6 billion by 1.5%, but decreased by 7.4% year over year [4][9] Market Challenges - The company faces ongoing challenges in a difficult housing market, including pricing pressures and macroeconomic headwinds such as cost inflation and tariffs on construction materials [2][3] - Net orders fell by 4.4% year over year to 2,950 units, with the value of net orders declining to $1.31 billion from $1.54 billion in the previous year [6][9] Operational Adjustments - In response to weaker demand, management revised fiscal 2025 housing revenue guidance downward to a range of $6.1 billion to $6.2 billion, down from previous expectations of $6.3 billion to $6.5 billion [2][13] - The average selling price (ASP) is now estimated at approximately $483,000, compared to the previous range of $480,000 to $490,000 [13] Segment Performance - Homebuilding segment revenues were $1.61 billion, a decline of 7.6% from $1.75 billion in the prior year, with homes delivered decreasing by 6.6% to 3,393 units [5][9] - The housing gross margin contracted by 180 basis points year over year to 18.9%, primarily due to pricing reductions and higher land costs [8][9] Financial Position - As of August 31, 2025, KB Home had cash and cash equivalents of $330.6 million, down from $598 million at the end of fiscal 2024, with total liquidity of $1.16 billion [11] - The debt-to-capital ratio increased to 33.2 from 29.4 at the end of fiscal 2024 [11] Shareholder Returns - The company repurchased approximately 7.8 million shares for $438.5 million, with $261.5 million remaining under the repurchase authorization as of August 31, 2025 [12]

Core Viewpoint - KB Home is facing challenges due to high mortgage rates and affordability issues, impacting demand and profit margins, while RBC Capital maintains a "Sector Perform" rating with a slight increase in price target from $58 to $59 [2][6]. Company Overview - KB Home is a significant player in the homebuilding industry, constructing various homes across the United States, competing with major builders like Lennar and D.R. Horton [1]. - The current stock price of KB Home is $63.69, reflecting a modest increase of 2.09% or $1.31 [3]. Market Conditions - High mortgage rates and affordability issues are particularly affecting first-time buyers, leading to a squeeze in profit margins for KB Home [2][6]. - The company's backlog is shrinking, and it is exposed to weaker geographic markets, raising concerns about its future performance [3]. Financial Performance - KB Home's reduced sales guidance suggests potential performance softness through 2026, with a need for mortgage rates to fall below 6% for significant improvement [3][5]. - The company has a market capitalization of approximately $4.33 billion, with trading volumes reflecting investor interest at 402,730 shares [4]. Strategic Measures - To mitigate the impact of current challenges, KB Home is implementing cost control measures and stock buybacks [4][6]. - Over the past year, KB Home's stock has experienced significant volatility, with a high of $86.73 and a low of $48.90, indicating both challenges and opportunities in the housing market [5].

Core Insights - KB Home reported third-quarter earnings of $1.61 per share, surpassing analyst expectations of $1.50, but net income decreased to $109.8 million from $157.3 million year-over-year [1][2] Financial Performance - Revenue for the quarter was $1.62 billion, exceeding expectations of $1.59 billion but down from $1.75 billion a year earlier [2] - Home deliveries fell by 7% to 3,393 units, while the average selling price decreased to $475,700 [2] - The housing gross profit margin declined to 18.2% from 20.6% a year ago, impacted by price reductions and increased land costs [2] Future Outlook - For the full year 2025, KB Home forecasts revenue between $6.1 billion and $6.2 billion, slightly below analysts' estimate of $6.26 billion [2]

Core Viewpoint - The article emphasizes the importance of contrarian investment strategies based on macroeconomic views and specific stock turnaround stories to achieve significant returns with a favorable risk/reward profile [1]. Group 1 - The author has over fifteen years of experience in making contrarian bets [1]. - The focus is on identifying potential investment opportunities through macro views and company-specific analyses [1]. - The article invites readers to request coverage on specific stocks or ask questions related to investment [1].

Core Viewpoint - The article emphasizes the importance of contrarian investment strategies based on macroeconomic views and specific stock turnaround stories to achieve significant returns with a favorable risk/reward profile [1]. Group 1 - The author has over fifteen years of experience in making contrarian bets [1]. - The focus is on identifying potential investment opportunities through macro views and company-specific analyses [1]. - The article invites readers to request coverage on specific stocks or ask questions related to investment [1].

Core Viewpoint - Rheinmetall is expanding its operations by planning to build a new ammunition plant in Latvia, enhancing the Baltic nation's defense capabilities against potential threats from Russia [1] Company Summary - Rheinmetall, a German defense conglomerate, is taking strategic steps to bolster defense infrastructure in Eastern Europe [1] Industry Summary - The establishment of the ammunition plant in Latvia signifies a growing trend in the defense industry to increase military readiness in response to geopolitical tensions, particularly in regions bordering Russia [1]

Core Insights - KB Home (NYSE:KBH) is a significant player in the homebuilding industry, focusing on homes for first-time and move-up buyers, primarily operating in the United States [1] - The company reported an earnings per share (EPS) of $1.61, exceeding the estimated $1.50, representing a 7.33% earnings surprise, although it is a decrease from $2.04 EPS in the same quarter last year [2][6] - KBH achieved revenue of approximately $1.62 billion, surpassing the estimated $1.59 billion by 1.50%, but this reflects a decline from $1.75 billion reported a year ago [3][6] Financial Metrics - The company has a price-to-earnings (P/E) ratio of approximately 7.81, indicating the market's valuation of its earnings [4][6] - KBH's price-to-sales ratio stands at about 0.64, suggesting a relatively low valuation compared to its sales [4] - The enterprise value to sales ratio is 0.87, slightly higher than its sales, reflecting the company's overall valuation, including debt [4] Financial Stability - KBH's debt-to-equity ratio is 0.47, indicating a moderate level of debt compared to equity [5] - The company has a strong current ratio of 18.35, highlighting its ability to cover short-term liabilities with current assets [5] - KBH's earnings yield is 12.81%, showcasing its financial strength and return on investment for shareholders [5]

Group 1 - The article does not provide any specific information or data regarding companies or industries [1]