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What Happened to KB Home’s Earnings in Q2?

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KB Home (NYSE:KBH) stock fell nearly 13% in extended trading on Wednesday. The home construction company posted its earnings for the second quarter of fiscal 2020, which ended May 31, after the markets closed. KB Home reported mixed results in the second quarter. Although the adjusted EPS beat analysts’ expectations, the total revenues were below the estimates.

KB Home’s Q2 earnings results

In the second quarter, KB Home reported an EPS of $0.55 compared to $0.51 in the second quarter of fiscal 2019. The earnings beat analysts’ consensus estimate of $0.52 per share. KB Home generated sales of $914 million—a reduction of 10.6% from the second quarter of fiscal 2019. The company missed analysts’ consensus sales estimate of $1.1 billion. The company reported a big drop in housing orders due to the coronavirus pandemic. KB Home stated that the coronavirus pandemic increased its order cancelation rate. As a result, the gross orders and net orders for the second quarter of fiscal 2020 declined by 36% and 57%, respectively.

In the second-quarter earnings release, KB Home CEO Jeffrey Mezger said, “The prolonged stay-at-home public health orders, resulting economic shutdown and our conservative approach to navigating the uncertain environment significantly impacted our orders during the quarter. However, following a low point in April, we are very encouraged by the resilience of housing market demand.” Mezger added, “We experienced steady and significant improvement in our order trends beginning in May, which was further fueled by welcoming walk-in traffic to our communities. This improvement has accelerated dramatically in the first three weeks of June during which time we have achieved a modestly positive year-over-year comparison, as orders have returned to more normalized levels.”

Growth projections

Wall Street analysts expect KB Home to report an EPS of $0.50 on revenue of $950.5 million in the third quarter. Analysts also expect the company’s revenues to fall by 9.1% YoY (year-over-year) in fiscal 2020 to $4.14 billion. The sales could rise by 15.2% YoY in fiscal 2021 to $4.77 billion. The earnings will likely fall by 8.4% YoY in fiscal 2020 to $2.61 per share. However, the profits could rise by 10.3% YoY to $2.88 per share in fiscal 2021.

Analysts’ recommendations and target price

Among the 16 analysts tracking KB Home stock, nine recommend a “hold,” six recommend a “buy,” and one recommends a “sell.” Wall Street analysts have a 12-month target price of $32.50 for KB Home stock. Overall, the target price implies a downside potential of 2.5% compared to the stock’s closing price on Wednesday. The consensus target price for the stock has risen from $29.50 in May—a growth of 10.2%.

Many analysts changed their target price for KB Home stock after its second-quarter earnings report.

  • Barclays increased its target price from $28 to $34.
  • RBC decreased its target price from $34 to $33.
  • Evercore ISI downgraded the stock from “outperform” to “in line” and decreased its target price from $39 to $33.
  • Wedbush increased its target price from $31 to $33.

Stock returns

KB Home stock fell 2.2% on Wednesday and ended the day at $33.33. At this closing price, the company’s market cap is $3.0 billion. Notably, the stock is trading 17.7% below its 52-week high of $40.51 and 239.4% above its 52-week low of $9.82. So far, the stock has declined about 2.7% year-to-date.

Based on the closing price on Wednesday, KB Home stock was trading 1.4% below its 20-day moving average of $33.79. The stock is also trading 15.6% above its 50-day moving average of $28.84 and 18.0% above its 100-day moving average of $28.24. KB Home’s 14-day relative strength index score of 54 indicates that it isn’t overbought or oversold.

KB Home stock has an upper Bollinger Band level of $36.76, while its lower Bollinger Band level is $30.83. On Wednesday, the stock closed near its middle Bollinger Band level of $33.79, which indicates that it isn’t overbought or oversold.

KB Home stock fell 13.9% in the pre-market trading session today at 6:16 AM ET. At the same time, the S&P futures and the Dow futures fell 0.37% and 0.45%, respectively. To learn more, read Jeremy Grantham Said US Stock Markets Are in a Bubble.

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