Market Woes Hammer KB Home

The comments echoed those from fellow homebuilder Lennar(LEN), which reported an unexpected quarterly loss earlier this week. As well, builders such as Toll Brothers (TOL) and Hovnanian (HOV) have warned that the meltdown in the subprime-lending industry in recent months has derailed any improvement in the housing market.

"We interpret [KB Home] management's tone as more cautious, likely due to worsening trends toward the end of the quarter," said Bank of America analyst Daniel Oppenheim in a research note Thursday. "However, we also think the company was aggressive in working to generate orders and likely found that, with the buyer fear at this point, lower prices do not always lead to increased traffic or sales."

Oppenheim expects KB Home to report more impairment charges this year, given the deteriorating pricing trends.

"We think this will pressure the stock, since its premium valuation is based on more growth to book value than the outlook implies," Oppenheim said.

Homebuilders on average are trading near their book value, whereas KB Home is trading at a 10% premium. The stock recently was down 20 cents, or 0.5%, to $40.23.

As for other builders, Lennar was down 57 cents, or 1.5%, to $37.29; Toll slipped 29 cents, or 1.1%, to $25.21; Hovnanian dropped 33 cents, or 1.9%, to $17.15; and Pulte (PHM) fell 36 cents, or 1.6%, to $22.64.

Although KB Home did not provide earnings guidance, the company did say it expects to report a profit for 2007 if the sale of its French homebuilding division closes as expected.

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