Raymond James downgrades KB Home on disappointing Q4 results, near-term risks

Investing.com -- Raymond James downgraded KB Home (NYSE: KBH) to Market Perform from Outperform, citing the company’s “disappointing” fourth-quarter results and rising near-term risks tied to a change in operating strategy.

Analyst Buck Horne said the downgrade reflects weaker-than-expected fiscal fourth-quarter earnings and concerns around KB Home’s decision to pivot back toward a build-to-order model at a time when entry-level peers continue to move spec inventory aggressively using mortgage rate buydowns.

While the strategy may appeal to customers seeking pricing transparency and customization, it could put the company at a tactical disadvantage in the current affordability-driven market, Horne noted.

“Competitors have proven unafraid of aggressively utilizing financing tools that can generate lower monthly payments, less margin impact, and faster inventory turns in an environment where “affordability” has become the ultimate selling feature,” the analyst explained.

Against that backdrop, he warned that KB Home may be “unilaterally disarming,” even as it continues to rely on spec homes for roughly 30% to 40% of fiscal 2026 (FY26) deliveries.

KB Home reported GAAP EPS of $1.55 for the fourth quarter, down 38% year over year and below both Raymond James’ $1.75 estimate and the $1.79 consensus.

Horne cited stronger-than-expected deliveries as a partial offset but pointed to higher inventory impairments, option write-offs, elevated SG&A expenses, and weaker home sales gross margins as key drags on the quarter.

The analyst also highlighted the scale of recent price cuts, noting that backlog average selling prices are down 11% year over year, alongside what they described as the company’s lowest starting backlog position since 2014.

These factors suggest the path back to normalized gross margins could stretch into fiscal 2027 or later, he added.

Reflecting the reset in expectations, Raymond James cut its FY26 EPS forecast to $3.60 from $6.45 and introduced a FY27 EPS estimate of $5.50.

While KB Home trades at 0.9 times tangible book value and 10.3 times projected FY27 earnings, Horne said limited near-term operating leverage and a sub-par 6% projected return on invested capital (ROIC) support a more neutral stance at this stage.

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