Analysts Slash KB Home Targets Following Guidance Cut

KB Home KBH stock traded lower by 16 percent Thursday, on track for its worst day of trading since 1992. The market was spooked by the homebuilder’s weak Q4 guidance that the company said was negatively impacted by the California wildfires and a weak Texas market.

The company cut Q4 guidance from a range of $1.39 billion to $1.45 billion to a range of $1.31 billion to $1.34 billion.

Wall Street analysts reacted to the weak guidance Thursday, with at least four firms slashing their price targets for KB stock. Wells Fargo analyst Stephen East cut his target from $35 to $30 but reiterated his Outperform rating.

“We believe the sentiment is such that equity gets hit in the very short run, then behaves like the rest of the group—which is likely weak despite the traditional seasonal trade,” East wrote on Thursday.

But while East remains optimistic in the long term, Bank of America analyst John Lovallo II said there's simply too much risk to buy KB stock at the moment. Lovallo downgraded KB from Buy to Neutral and lowered his price target from $26 to $24.

“We believe a lower valuation multiple is warranted given the significant order decline and heightened market uncertainty in FY19,” Lovallo wrote in his downgrade note.

Even after the disappointing guidance, Lovallo said risk to KB’s financial outlook remains to the downwide.

As of Thursday, the Camp Fire in Butte County California has burned 140,000 acres and is 40 percent contained. The Woolsey Fire in Los Angeles County has burned 98,000 acres and is 57 percent contained.

Following Thursday’s sell-off, KB stock is now down 45.4 percent year-to-date. Shares traded around $17.38 at time of publication.

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