Analysts reboot KB Home stock price target after earnings | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

The worst is yet to come.

We admit that’s not a good way to kick things off, but right now little in the way of happy talk is coming from the housing sector.

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The U.S. housing market remains stuck in a rut that could extend well into next year, constrained by a lack of new homes and stagnant mortgage rates, TheStreet’s Martin Baccardax reports.

Bret Jensen said in his TheStreet Pro column that while equity markets have stabilized over the past three trading sessions and stocks began the week with a huge rally, worrying economic reports are increasing.

“I am especially concerned when it comes to real estate,” the investment strategist said. “Delinquency rates on commercial real estate loans have been moving significantly higher for some time now.”

The situation in residential real estate is also deteriorating, Jensen said. Existing-home sales for both 2023 and 2024 both came in at their lowest levels since 1995.

“The most disturbing part of the new-home-sales report was that new-home inventory has now surged to nearly nine months’ supply,” he said. “Prior to the pandemic, there was less than a six-month supply of new homes.

“This fell to just over three months during the summer of 2020 as the Covid outbreak spread fully across the nation,” he added.

KB Home CEO notes that consumer confidence has declined.

KB Home CEO: consumer confidence declining

Potential new tariffs from the Trump administration on Canadian lumber are just the latest of a litany of headwinds the industry faces, Jensen said, and “things are also likely to get worse before the sector eventually bottoms.”

He said that the current weakness can be seen in the commentary after national homebuilder KB Home (KBH) reported first-quarter earnings that missed Wall Street’s expectations.

More Real Estate:

The Los Angeles company’s net income dropped 21.5% and revenue was off by 5%, both from a year earlier.

Net orders of 2,772 were down 17%, contributing to a drop in the backlog — homes that haven’t yet been completed or delivered — to 4,436. Ending backlog value declined 21% to $2.2 billion.

“Consumers are continuing to cope with affordability concerns and uncertainties around macroeconomic and geopolitical events,” Chairman and Chief Executive Jeff Mezger told analysts.

“As a result, consumer confidence has declined sequentially each month for the past several months, and homebuyers are moving more slowly in making their purchase decisions,” he said during the company’s earnings call.

While longer-term housing market conditions remain favorable, driven by demographics and an undersupply of homes, Mezger said, “demand at the start of the spring selling season has been more muted than we have seen over the past few years.

“As a result of this softer selling environment, we are lowering our revenue guidance for fiscal 2025,” Mezger said.

Rob McGibney, KB Home’s president and chief operating officer, said the 2025 spring selling season started slower than in previous years, “reflecting a decline in consumer confidence as consumers processed the variables relating to macroeconomic and geopolitical issues.”

“This decline in confidence is leading homebuyers to take longer to make their purchase decisions,” he said.

Analyst calls KB well-positioned

Investment firms adjusted their price targets for KB Home following the earnings release.

Barclays analyst Matthew Bouley lowered the firm’s price target on KB Home to $56 from $60 and kept an equal weight rating on the shares, according to The Fly.

Q1 orders came in well below consensus, and its implied second-half ramp up of margins “could be optimistic,” the analyst said.

Bouley said KB’s fiscal 2025 revenue and margin guidance were lowered as spring “underwhelms” and the company cuts base prices to generate traffic.

Wells Fargo analyst Sam Reid said he had expected KB Home to guide down, which it did, with cuts to deliveries, average selling price, gross margin and operating margin.

Reid pared the investment firm’s price target on KB Home to $57 from $63 while affirming an underweight rating on the shares.

The stock is indicated lower, but Reid said he was not sure this represented a buying opportunity.

Bank of America Securities cut the firm’s price target on KB Home to $62 from $67 and kept a neutral rating on the shares.

Following the quarterly report, the investment firm lowered its fiscal 2025 earnings estimates about 7% to reflect lower orders and revenue.

“On the positive side, we view KBH as a well-positioned builder given its high exposure to first-time homebuyers and improving return on equity,” B of A said. “However, [the] shares are fairly valued at current levels.”