Compass Point Expects Uncertainty on KB Homes Following Margin Miss

In a report published Monday, Compass Point analyst Wilkes Graham reiterated a Sell rating and $14.00 price target on KB Home (NYSE: KBH).

In the report, Compass Point noted, “We are reiterating our Sell rating and $14.00 PT. KBH reported a weak quarter characterized by lower than expected margins and deliveries, and the only ASP miss we have seen from our home builder coverage in 2013. Management attributed the 1.8% margin miss to higher mortgage rates, a shift in their buyer mix to move-up buyers, and their average house size increasing 7% from 2012. While management has observed a pause amongst homebuyers, they believe that this trend is only short term in nature as buyers inevitably will start to digest the higher prices and interest rates in 2014. With that said, we still expect uncertainty surrounding rising rates for the low price point builders more so than their higher price point peers going into 2014.”

KB Home closed on Friday at $16.91.