KB Home Books Another Solid Quarter, But Shares Still Look Pricey

KB Home (NYSE: KBH) is building a nice gain after a healthy third quarter earnings beat, but after a 10 percent gain, shares appear to be expensive, according to analysts.

“While KBH is making progress, our forward ROE estimate does not support current valuation,” said BTIG analyst Carl Reichardt Jr.

KB Homes is undergoing a successful shift in California, where 85 percent of the revenue increase came from the Golden State. It appears that growth in California may not be sustainable, with average selling price growth on the west coast peaking at $706,000. 

“It is not clear to us if KBH has the community pipeline in place to support at current West Coast ASP levels,” said Reichardt. (See Reichardt's track record here.) 

BTIG rates KB Homes with a Sell and a $16 price target.

'A Dynamic Transition Story' 

Buckingham Research views KB Homes as a high risk/high reward play, but said that it's staying on the sidelines for now, maintaining a Neutral rating but raising its price target from $21 to $22.

“We remain on the sidelines following a powerful run in the stock and would remind investors that while the company has executed more consistently of late, KBH is still a dynamic transition story being pushed by relatively high financial leverage,” said Buckingham's Mark Weintraub.

KB Homes has been focusing on creating lower-end new homes where demand is ripe, but this means that it generates more than half of sales from potentially more rat-sensitive first-time buyers, according to Buckingham. 

“Because of its high financial leverage and historically inconsistent execution, we are more trading-oriented with KBH than most stocks we cover,” Weintraub said. 

Related Links: 

Homebuilders Under Pressure After Housing Market Index Hits 8-Month Low 

Taking A Dive Into KB Home's Beat And Raise Quarter