KB Home (KBH) Down 4.4% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for KB Home (KBH). Shares have lost about 4.4% in that time frame, underperforming the S&P 500.Will the recent negative trend continue leading up to its next earnings release, or is KB Home due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts. KB Home's Q4 Earnings & Revenues Beat EstimatesKB Home reported impressive fiscal fourth-quarter 2024 results, wherein both revenues and earnings surpassed expectations. On a year-over-year basis, both metrics increased, highlighting its resilience in a fluctuating housing market.The company’s results underscore the effectiveness of Its strategy, driven by faster build times and a strong appetite for homeownership despite mortgage rate pressures. While challenges remain, its strong order book and expanded community count suggest a solid growth trajectory for 2025.KB Home is optimistic about 2025. However, challenges such as mortgage rate headwinds and potential regulatory shifts could temper the pace of growth. Still, the company’s robust investments in land and its “Built to Order” model provide a cushion against market uncertainties.KBH’s Earnings & Revenue DiscussionKBH reported adjusted earnings per share (EPS) of $2.52, beating the Zacks Consensus Estimate of $2.45 by 2.9% and increasing 36.2% from the year-ago level. Total revenues of $2 billion topped the consensus mark of $1.99 billion by 0.4% and increased 19.5% on a year-over-year basis.Segment Details of KBH’s Quarterly ReleaseHomebuilding: The segment's revenues of $1.993 billion grew 19.7% from the prior-year quarter’s level. The number of homes delivered was 3,978 units, up 17% from the year-ago period’s level. The reported figure was better than our projection of 3,850 units for the quarter. The average selling price, or ASP, also increased 3% from a year ago to $501,000. Our model had predicted ASP to be $511,600 for the fiscal fourth quarter. Notably, build times were reduced by 28% year over year, enabling faster backlog turnover and improved customer satisfaction.Net orders grew by a significant 41% to 2,688 units from the prior year. The value of net orders was also up 41% from the year-ago quarter to $1.32 billion. We projected orders to be 3,008 units or $1.51 billion for the fiscal fourth quarter. Absorption or monthly net orders per community increased to 3.5 from 2.7.The cancelation rate, as a percentage of gross orders, was 17% compared with 28% in the year-ago period.The quarter-end backlog totaled 4,434 homes, down from the year-ago figure of 5,510 units. Further, potential housing revenues from the backlog declined 16% from the prior-year period to $2.24 billion.The average community count was up 8% to 256, and the ending community count rose 7% year over year to 258.KB Home’s strong operational execution—reflected in improved margins and customer satisfaction—has been a key differentiator in the competitive homebuilding sector.Within homebuilding, the housing gross margin (excluding inventory-related charges) improved 10 basis points (bps) year over year to 20.9%. This improvement came despite ongoing challenges such as elevated mortgage rates and fluctuating material costs. Our model anticipated the housing gross margin to be 21% for the quarter.Selling, general and administrative expenses (SG&A) — as a percentage of housing revenues — decreased 50 bps to 9.4%, reflecting increased operating leverage from higher housing revenues.Homebuilding’s operating margin (excluding inventory-related charges) was up 60 bps to 11.5%, owing to higher housing gross margin and improved operating leverage. We expected the operating margin to be 11.3% for the reported quarter.Financial Services: The segment's revenues declined 23.8% year over year to $6.85 million. The pretax income was $13.1 million, up 7.7% from a year ago, mainly due to increased equity in income of KBH’s mortgage banking joint venture.KBH’s Fiscal 2024 HighlightsFor the full year, the company generated $6.93 billion in total revenues (up 8.1% year over year), with EPS rising to $8.45, an increase of more than 20% compared to fiscal 2023. Homes delivered were up 7% to 14,169. The ASPs of the homes delivered were $486,900, up from $481,300 a year ago. Adjusted gross margins were 21.1% (down 30 bps), aligning with its historical performance.KB Home’s Financial PositionKB Home had cash and cash equivalents of $598 million as of Nov. 30, 2024, down from $727.1 million reported at the end of fiscal 2023. The company had a total liquidity of $1.68 billion, including $1.08 billion of available capacity under the unsecured revolving credit facility. No cash borrowings were outstanding under the revolver on Nov. 30, 2024.As of the fiscal 2024-end, the debt-to-capital ratio improved to 29.4% from 30.7% at the end of 2023.In fiscal 2024, it repurchased approximately 4,725,181 shares of its outstanding common stock for $350 million. As of Nov. 30, 2024, it had $700 million in stock remaining under the repurchase authorization.KBH’s Fiscal 2025 GuidanceFor fiscal 2025, the company expects housing revenues to be in the $7-$7.50 billion band. ASP is estimated to be $488,000-$498,000.Assuming no inventory-related charges, KB Home now expects the housing gross margin to be between 20% and 21%.Homebuilding’s operating margin (assuming no inventory-related charges) is now expected to be 10.7%. SG&A expenses, as a percentage of housing revenues, are now likely to be in the range of 9.6. It projects an effective tax rate of approximately 24%. The company expects the ending community count to be within 250.How Have Estimates Been Moving Since Then?It turns out, estimates review have trended downward during the past month.The consensus estimate has shifted -6.97% due to these changes.VGM ScoresAt this time, KB Home has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise KB Home has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. 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