KB Home Faces Earnings Pressure as Housing Market Cools, Revenue Forecasts Decline

KB Home (NYSE: KBH), a prominent player in the U.S. homebuilding sector, is set to release its third-quarter fiscal 2025 earnings report today, after the market closes. The announcement arrives at a precarious juncture for the housing market, with analysts closely scrutinizing indicators for signs of resilience or further softening.

Analysts project that KB Home will report EPS of $1.51, down from $2.04 in the same quarter last year, indicating a decline in profitability amid a cooling housing market. Revenue is expected to total around $1.59 billion, reflecting a 9.52% year-over-year decrease as higher mortgage rates and affordability concerns continue to impact homebuyer demand and overall sales volume.

KB Home's second-quarter fiscal 2025 results offered a mixed bag. While the company managed to surpass EPS estimates, reporting $1.50 against an expected $1.45, and slightly exceeded revenue expectations with $1.53 billion compared to the $1.51 billion consensus, the real concern arose from the revised fiscal 2025 revenue guidance.

Management lowered the full-year outlook to a range of $6.3 billion to $6.5 billion, citing a “softer selling environment.” This revision has undoubtedly weighed on market sentiment, contributing to the recent decline in the stock price.

The cautious outlook for KB Home is reflected in recent analyst actions. Several firms have lowered their price targets on the stock, signaling reduced confidence in the company's near-term prospects. Barclays lowered its target to $56 from $60, maintaining an “equal weight” rating.

Wells Fargo reduced its target to $57 from $63, keeping an “underweight” rating. Bank of America Securities cut its target to $62 from $67, with a “neutral” rating. These adjustments suggest that analysts anticipate continued challenges for KB Home in the coming quarters.

The housing market, while facing headwinds from higher interest rates, continues to exhibit underlying strength due to pent-up demand and a persistent shortage of available homes. KB Home's focus on first-time homebuyers and its build-to-order model could provide a competitive advantage in a market where affordability is a key concern.

Moreover, it's worth noting that KB Home has a track record of effectively managing costs and adapting to changing market conditions. The company's strategic focus on returns-focused growth, as highlighted during CFO Jeff Kaminski's tenure, could enable it to navigate the current challenges more effectively than its peers. The market may be underestimating KB Home's ability to outperform expectations, particularly if the company can demonstrate improved efficiency and profitability in the upcoming earnings report.