Goldman Downgrades KB Home On Weak Forecast

Goldman Sachs recently downgraded KB Home

to Sell and lowered the target price to $10 as it believes the company's earnings trajectory is significantly lower than Street expectations. Key concerns include: SG&A remain stubbornly high and little fixed cost reprieve is seen given legal costs and the costs associated with new communities; KBH's over-levered balance sheet could approach 65%-70% net-debt-to-cap in 2011; and KBH's build-to-order strategy is not the correct sales approach in the current consumer environment, making recent delivery and SG&A guidance very difficult to achieve. Key risks to achieving the price target include a significant fixed cost reduction or a balance sheet restructuring. KB Home closed Monday at $11.05