The analyst's re-rating reflects lower visibility for the upside for KBH vs. its peers.

Although the analyst is pleased with KBH's higher near-term margin potential of its build-to-order home strategy, she believes a longer conversion cycle could result in more cancellations and put closings at greater risk as rates increase.

The analyst noted that KBH's cancellation rate rose 57pts between Q1 FY22 and Q4 FY22 (significantly above the sector average of 25pts).

The analyst expects closings to expand 5% next fiscal year, roughly in line with peers.

Also, the analyst is concerned about lower financial flexibility as the net debt/capital ratio stood at 22% in Q3 (vs. the group average of 10%).

The analyst estimates revenue and EPS of $6.354 billion and $6.85 in FY23 and $6.713 billion and $7.55 in FY24. 

Price Action: KBH shares are trading higher by 0.05% at $43.88 on the last check Monday.