On Thursday, BofA Securities updated its outlook on KB Home (NYSE:KBH), increasing the stock's price target to $70 from the previous $64, while maintaining a Neutral stance.
The adjustment follows KB Home's reported earnings for the first fiscal quarter of 2024 (F1Q24), which surpassed both BofA Securities' expectations and the consensus.
KB Home announced F1Q24 earnings per share (EPS) of $1.76, outperforming the anticipated $1.56 and the consensus of $1.58. This result was attributed to higher-than-expected home deliveries and a stronger gross margin. The company's adjusted homebuilding gross margin reached 21.6%, exceeding the forecast of 21.0%. The better margin was partly due to a shift in the timing of some deliveries from the second fiscal quarter (F2Q) to the first.
Based on these results, BofA Securities has revised its earnings per share estimates for KB Home for the fiscal years 2024 and 2025, increasing them by 7% and 1% respectively. The revisions are mainly due to stronger order activity. The new price objective of $70 is derived from a multiple of 1.2 times the 12-month forward book value, reflecting higher multiples among industry peers.
According to BofA Securities, the stock is currently trading at a fair value, approximately 1.2 times price-to-book, and is expected to generate a return-on-equity (ROE) of around 15% for the fiscal year 2024.
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