Bear of the Day: KB Home (KBH)

KB Home KBH is feeling the brunt of the higher mortgage rates and economic uncertainty. This Zacks Rank #5 (Strong Sell) is expected to see earnings fall by the double digits this fiscal year.KB Home is one of the largest homebuilders in the United States. Headquartered in Los Angeles, it operates in 49 markets.KB Home’s Gross Profit Margins and Revenues Fall Year-Over-Year in Fiscal Q2 2025On June 23, 2025, KB Home reported its fiscal second quarter 2025 results. It beat on the Zacks Consensus Estimate by $0.05, reporting $1.50 versus the consensus of $1.45.But that was just part of the story.Revenue fell to $1.53 billion from $1.71 billion a year ago. Homes delivered also fell 11% to 3,120.Adjusted gross profit margin, a key metric for the homebuilders, was 19.7%, which was down from 21.2% a year ago, due to price reductions and other homebuyer concessions, higher relative land costs, geographic mix, and reduced operating leverage, partly offset by lower construction costs.KB Home Scales Back on Land PurchasesGiven the tough market conditions, and a cheap stock price, KB Home has decided to scale back its land acquisitions.Instead, in the second quarter, it bought back $200 million in stock at an average price of $54, as it was below current book value. Investments in land and land development fell 23% from the prior year to $513.9 million.It expects to continue to buy back shares, while it reduces its land acquisitions.KB Home was sitting on $1.19 billion in total liquidity at the end of the second quarter, including $308.9 million in cash.It also continues to pay a dividend, currently yielding 1.80%.Analysts Cut Earnings Estimates on KB HomeKB Home guided the full year gross profit margin of 19% to 19.4%. That’s lower than in prior years.It’s not a surprise, given housing market conditions, that analysts are bearish. 4 estimates have been cut for fiscal 2025 in the last 30 days but one has even been cut in the last week.The fiscal 2025 Zacks Consensus Estimate is now looking for $6.55, down from $7.05 in the last 30 days. That is an earnings decline of 22.5% as KB Home made $8.45 last year.Analysts are bearish on fiscal 2026 as well. 4 estimates have been cut in the last 30 days for 2026, and one in the last week. The Zacks Consensus has fallen to 6.86 from $7.64 in the last month.That’s earnings growth of 4%, however.Here’s what it looks like on the price and consensus chart.Image Source: Zacks Investment ResearchShares of KB Home Retreat in 2025Given the tough housing market conditions, it’s not surprising that shares of KB Home have fallen this year.Image Source: Zacks Investment ResearchBut they recently bounced off the lows as the mortgage rates have fallen.KB Home is a cheap stock with a forward price-to-earnings (P/E) ratio of just 8.5. A P/E ratio under 10 usually indicates a company is dirt cheap.However, it’s likely that earnings will be pressured for the remainder of this year but there is always the “hope” trade later this year. That is the “hope” that the spring buying season will be strong.Watch the gross profit margins for clues about a turnaround in earnings. When they rise back over 20%, earnings will likely improve.   #1 Semiconductor Stock to Buy (Not NVDA)The incredible demand for data is fueling the market's next digital gold rush. As data centers continue to be built and constantly upgraded, the companies that provide the hardware for these behemoths will become the NVIDIAs of tomorrow.One under-the-radar chipmaker is uniquely positioned to take advantage of the next growth stage of this market. It specializes in semiconductor products that titans like NVIDIA don't build. It's just beginning to enter the spotlight, which is exactly where you want to be.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. Click to get this free report KB Home (KBH): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks