Citi's latest analysis on KB Home (KBH) highlights a modest Q4 EPS beat, driven by better-than-expected deliveries of 4,000 units against a consensus of 3,900, despite softer pricing and gross margins. The report notes that KBH's shares rose 9% post-market, even as the company guided below-consensus gross margins for FY 2025, expecting 20-21% compared to the consensus of 21.1%. This margin compression is attributed to ongoing buyer hesitancy and elevated incentives, which are anticipated to persist throughout the year.
The report also touches on macroeconomic factors, such as the deceleration in plumbing industry sales and the impact of resin and TiO2 deflation, which could support distributor margins. Additionally, the 2025 Houzz US Kitchen Trends Study indicates a resilient luxury consumer market, with more premium upgrades despite fewer overall projects, suggesting a shift towards sustainable and cost-effective products.
Citi's analysis underscores KBH's strategic positioning in the face of California's rebuilding efforts post-fires, noting that while utility crew shortages may delay community openings, the overall impact on labor and material availability is expected to be minimal. "We don’t expect 6 months from now there will be 8,000 housing starts in LA County as all these homes go right back up," a KBH representative stated, reflecting a cautious outlook on the pace of recovery.
KB Home was trading at $69.66, up 8.71% from the previous close of $64.08, as of January 14, 2025.