KB Home (KBH) faces a fragile housing market. Increased availability of housing alternatives may keep the company's earnings under pressure. Furthermore, the company's housing market is highly concentrated, which poses threats to its earnings performance.
The company did post a profit of $0.18 per share during the fourth quarter of fiscal 2011, which was much higher than the Zacks Consensus Estimate of $0.03. Nevertheless, the negative factors have led us to downgrade the recommendation on shares of KB Home from Neutral to Underperform with a target price of $10.00.
Our long-term Underperform recommendation on the stock indicates that it will perform lower than the overall market. Our $10 target price, 25.0X our 2013 EPS estimate, reflects this view.
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