To The Moon

$KB Home(KBH)$ is expected to release its fiscal Q1 2025 earnings result on 24 March 2025 after market close.

The current consensus estimate for the revenue is looking at $1.5 billion, which is an increase of 2.37% from same period one year ago.

KBH earnings per share is projected to decline by 10.23% compared to same period last year to come in at $1.58 per share.

KB Home (KBH) Last Neutral Earnings Call Saw A Decline of 4.03% Of Its Share Price

KB Home had a neutral earnings call on 13 Jan 2025 which saw its share price drop by 4.03% since.

The earnings call highlighted strong financial and operational performance in 2024, with significant returns to shareholders and improvements in build times. However, challenges from rising mortgage rates and economic uncertainties led to adjusted revenue guidance for 2025. The company is well-positioned for future growth but remains cautious due to market volatility.

KB Home (KBH) Guidance On Fluctuating Mortgage Rates.

During KB Home's fourth quarter 2024 earnings call, the company reported strong financial performance within its guided range, highlighting key metrics such as total revenues of $2 billion, a 17% increase in deliveries, and a 36% growth in earnings per diluted share to $2.52. The gross margin expanded to just under 21%, and operating income increased to 11.5%. KB Home returned nearly $120 million to shareholders, primarily through share repurchases. For the full year, the company delivered approximately 14,200 homes, raising total revenues to around $7 billion and diluted earnings to $8.45 per share. The book value expanded by 12%, and a higher return on equity was achieved, despite challenges from fluctuating mortgage rates.

Looking forward, the company estimates housing revenues for 2025 in the range of $7.0 billion to $7.5 billion, with a focus on maintaining a balanced approach to growth and shareholder returns.

Analyzing KB Home’s (KBH) fiscal Q1 2025 earnings involves evaluating trends in the U.S. housing market, macroeconomic conditions, and company-specific strategies.

As we have heard the Fed comment during the FOMC, the interest rate would remain the same, the next rate cut might be coming only towards the end of 2025, hence, this might affect the mortgage rates and this could impact KB Home.

Here are the structured outlook based on potential drivers and risks:

Key Positive Drivers

Interest Rate Environment

If the Federal Reserve begins cutting rates in late 2024/early 2025, lower mortgage rates could revive buyer demand, especially for first-time homebuyers—a key demographic for KB Home’s affordable housing focus.

Improved affordability may boost net orders and reduce cancellation rates.

Housing Inventory Dynamics

Persistent shortages in existing home inventory could drive buyers toward new constructions, benefiting KB Home’s sales volume and pricing power. Strong employment and wage increases, along with demographic trends, continue to drive housing demand, particularly among millennials and Gen Z buyers.

Operational Efficiency

Stabilization in lumber and material costs (if supply chains improve) could support gross margins. KB Home’s “Built-to-Order” model allows flexibility to adjust pricing and specs, potentially protecting profitability. Build times reduced by 28% year-over-year, allowing for quicker backlog conversion. The company opened 106 new communities and achieved the highest level of customer satisfaction in its history.

Geographic Exposure

Strength in Sun Belt markets (where KBH has significant presence) could persist due to population growth and job creation in states like Texas, Florida, and Arizona.

Balance Sheet Strength

KB Home’s low debt-to-capital ratio (~40% as of late 2023) provides financial flexibility to invest in land acquisition and community expansions.

Potential Challenges

Macroeconomic Uncertainty

A recession or persistent inflation could dampen consumer confidence, delaying home purchases despite lower rates. Affordability constraints due to increasing mortgage rates affected near-term demand, leading to missed internal sales goals.

Wage growth stagnation might limit buyers’ ability to qualify for mortgages. Volatility in mortgage interest rates and macroeconomic uncertainties, including upcoming elections, slowed sales pace below internal targets.

Labor/Supply Chain Pressures

Skilled labor shortages or delays in permitting could slow construction timelines, impacting revenue recognition.

Competition

Rivalry from larger builders (e.g., D.R. Horton, Lennar) in the entry-level market could pressure pricing and market share.

Weather Delays

Severe winter weather in Q1 could temporarily disrupt construction activity in some regions.

Financial Metrics to Watch

Revenue Growth: Fourth quarter revenues reached $2 billion, a significant year-over-year increase driven by a 17% rise in deliveries. Earnings per diluted share grew 36% to $2.52. Total revenues for 2024 increased to roughly $7 billion.

Gross Margin: Target ~21–23%; improvements would signal cost control and pricing power. KB Home returned nearly $120 million to shareholders in Q4, mainly through share repurchases. For 2024, a total of $350 million was returned, representing 6% of shares outstanding.

Net Orders & Backlog: Rising orders and a robust backlog (e.g., above 6,000 homes) indicate strong future revenue.

EPS vs. Expectations: Beat/miss relative to analyst forecasts could drive stock volatility. Due to market conditions and a slower start to 2025, the company lowered its housing revenue guidance for the year to $7.25 billion at the midpoint of its range.

Community Count Growth: Expansion into new communities reflects long-term growth potential. Forecasted higher community sellouts leading to a flat community count throughout 2025, despite significant investments in land acquisition.

KB Home (KBH) Price Target

Based on 11 Wall Street analysts offering 12 month price targets for KB Home in the last 3 months. The average price target is $76.35 with a high forecast of $97.00 and a low forecast of $60.00. The average price target represents a 24.61% change from the last price of $61.27.

If we looked at how KB Home share price have been trading, the current price looks like a potential discount as KBH trades at a lower P/E ratio than peers, potentially offering value if earnings outperform.

We need to see a positive guidance for spring 2025 selling season (post-Q1) could lift sentiment, even if Q1 results are mixed.

Technical Analysis - Exponential Moving Average (EMA)

If we looked at the technicals, we are seeing KBH share price declining below the 12-EMA, with RSI showing weak momentum, this might not signal any potential.

With the interest rate remain unchanged from the latest FOMC meeting, this could have some impact on the mortgage rates, which could reduce the affordability constraints due to increasing mortgage rates.

The same challenge arise from previous earnings, so investors might not be getting into KBH, unless they can see that economy is growing despite interest rate remain unchanged.

Summary

If macroeconomic conditions stabilize (lower rates, steady job growth) and KB Home executes on its affordable housing strategy, fiscal Q1 2025 could show modest revenue growth and margin resilience.

However, persistent inflation, buyer hesitancy, or construction delays pose downside risks. I think as investors we might want to focus on the following :

1. Management’s commentary on demand trends number of rate cuts.

2. Updates on land acquisition and community expansion.

3. Revisions to full-year 2025 guidance.

Appreciate if you could share your thoughts in the comment section whether you think KBH could overcome the economic factors and also impact of near-term demand due to mortgage rate remain high.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.