Deutsche Bank: Margin Collapse At KB Home Is 'Company Specific'

KB Home KBH shrinking margin stems from factors specific to the company that won't affect competitors in the home construction sector, an analyst said Wednesday.

Deutsche Bank's Nishu Sood cut his price target on KB Home 14 percent to $18 a share, after the company said its gross margin will continue to narrow in the first quarter.

KB traded recently at $13.53, down nearly 2.5 percent.

Chief Executive Jeffrey T. Mezger told analysts Tuesday that the margin is shrinking on slower demand along with higher costs and discounts.

Mezger said KB's margin will hit a low point in the current quarter, before improving sequentially for the remaining three quarters of 2014.

Sood, who maintained a Hold rating on KB, doesn't expect other builders' margins to follow suit, "but we do expect continued turmoil for KB."

KB is selling properties from a number of "low margin communities" built following its 2013 land-buying binge, according to Sood.

The company's land holdings increased by 37 percent in 2013, compared with an average of 13 percent for competitors.

"At the same time, we think KB is losing some significantly above-average margin communities in coastal California," Sood said, citing a 2014 $50,000 increase in the company's average sale price.

Sood expects KB's average sale price will decline starting in the current quarter.