KB Home's Surging Demand Sparks Optimism, Analyst Elevates Forecast Amid Sales And Marketing Boost

Several analysts raised the price target of KB Home KBH following the first-quarter FY24 results reported yesterday.

The company beat analyst estimates on the top and bottom lines, with revenue of $1.47 billion, beating the consensus of $1.46 billion, and EPS of $1.76, exceeding the estimates of $1.57.

KB Home sees FY24 housing revenues in the range of $6.5 billion to $6.9 billion and average selling prices are expected to settle between $480,000 and $490,000.

RBC Capital raised the price target to $69 from $63, reaffirming the Sector Perform rating.

The analyst Mike Dahl increased the FY24 EPS estimate by +6% to $7.66, driven by the first-quarter beat and stronger FY deliveries.

Dahl raised EPS estimates to $7.66 (from $7.20) for FY24 and $7.78 (from $7.59) for FY25.

Dahl projects an FY24 HB gross margin of 21.1% (-30 bps y/y), with 20.8% (vs. 21.0% prior) expected in the second-quarter FY24.

Wedbush raised the price target to $64 from $60 and kept the Neutral rating.

KB Home indicated that demand improved through the first quarter, with orders 46% higher yoy in January and +53% in February.

Based on KB Home’s first-quarter call commentary, the analyst noted increased spending on sales and marketing along with personnel growth, which increased KB Home’s scale and caused the yoy de-leverage. 

Demand indicators were in line to better than the analyst had expected.

The analyst Jay McCanless raised sales and EPS estimates to $6.7 billion (from $6.6 billion) and $8.12 (from $7.61) in FY24 and $7.2 billion (from $7.1 billion) and $9.09 (from $8.38) for FY25, respectively.

The analyst says the FY24 EPS estimate change includes the first-quarter FY24 beat and reflects the forecast for 13.9k closings vs. 13.5k previously. 

The analyst also increased the FY24 gross margin by 20bps to 21.2% and the SG&A/sales ratio by 20bps to 10.2%. 

For FY25, McCanless continues to expect 5% Y/Y unit closing growth, albeit off a higher base in FY24, and raised the gross margin estimate to 21.3% from 21.1% to reflect KB Home’s positive pricing comments. 

However, the analyst estimates a headwind for gross margin expansion from FY24 to FY25 owing to the company’s projection about land development inflation in a range of high-single-digit to low-double-digit percentage growth.

Apart from this, Wells Fargo increased the price target to $70 from $65 and reiterated the Equal-Weight rating.

UBS analyst John Lovallo maintained KB Home with a Buy and raised the price target from $82 to $87.

Price Action: KBH shares are trading lower by 1.03% at $69.17 on the last check Thursday.

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