What You Need To Know About KB Home's Quarter

• KB Home KBH shares are down 15 percent since June 26, when they touched a high of $17.27.
• FBR’s Patrick Kealey maintained a Market Perform rating on the company, while reducing the price target from $17 to $16.
• Although the company is better positioned to capitalize on the homebuilding recovery, the stock appears fairly valued, Kealey stated.

KB Home reported its 3Q EPS at $0.23 per share, ahead of expectations. The company’s homebuilding revenue, including land sales, was up 43 percent y/y, driven by the company’s improved closings and increased average selling price.

A 19 percent y/y increase in new orders and 23 percent growth in the value of new orders were the highlights of the quarter. The company’s homebuilding gross margin contracted y/y due to inventory impairment and land option contract abandonment charges, analyst Patrick Kealey said.

Kealey believes that KB Home is well positioned to capitalize on the recovery in the homebuilding segment, but its current stock valuation already reflects this.

“While we continue to favor other builders at current valuation levels, we believe management's transition toward a more asset-efficient model and improving returns should benefit shareholders longer term,” the analyst added.

KB Home expects its 4Q15 gross margin to rise above 18 percent, its average sales price to be in the range of $374,000–$378,000, and its FY16 homebuilding revenue growth to be in the 10-25 percent range.