Leverage, Debt Maturities, and Coverage
Moderate Leverage: KB Home’s balance sheet leverage is reasonable for its industry, and the company has actively managed its debt maturities. As of Feb 2026, total debt (“notes payable”) stood at $1.89 billion, up slightly from $1.69 billion at year-end due to a $200 million draw on its credit line (investor.kbhome.com). The temporary increase in borrowing raised its debt-to-capital ratio to ~33% from ~30% (investor.kbhome.com) – still a conservative level well below the 60% maximum allowed by loan covenants (www.sec.gov). Importantly, KB Home maintains strong liquidity, with about $1.2 billion available including $200 million cash and an undrawn revolving credit facility balance of nearly $1.0 billion as of Q1 2026 (investor.kbhome.com).
Well-Staggered Maturities: The company faces no significant debt due until mid-2027. In late 2025 KB Home refinanced and extended its credit lines – securing a new $1.20 billion unsecured revolving credit facility maturing November 2030 (www.sec.gov) (www.sec.gov) – and pushed out its term loan maturity from 2026 to November 2029 (www.sec.gov). As a result, the next major obligation is $300 million of senior notes due June 15, 2027 (www.sec.gov). Beyond that, the debt stack includes $300 million due late 2029, a $360 million term loan due 2029, $350 million due July 2030, and $390 million due June 2031 (www.sec.gov). Only trivial amounts (under $1 million) are due within 12 months (www.sec.gov) (www.sec.gov), giving the company breathing room in the current high-rate environment.
Interest Coverage and Covenants: KB Home’s interest obligations are comfortably covered by its earnings and cash flow. In fiscal 2025, the company incurred $113.9 million of interest (www.sec.gov), all of which was capitalized into the cost of homes under construction (as is typical for homebuilders). Even on a cash basis, that interest is only about 20% of 2025 operating profit, implying an EBITDA-to-interest coverage on the order of 5–6×. Moreover, covenants require either an interest coverage ratio ≥1.50× or sufficient liquidity to cover interest (www.sec.gov) (www.sec.gov) – a threshold KB Home easily met with a trailing coverage well above that minimum and cash on hand. Most of the debt is fixed-rate (e.g. senior notes at 4–7% rates (www.sec.gov)), insulating KB Home from rising interest costs, though roughly $560 million (the term loan and recent revolver borrowings) is variable-rate and exposed to the current higher SOFR rates. Overall, financial flexibility is solid: the company ended 2025 with $1.43 billion in liquidity (www.sec.gov) and a healthy 6.6× current ratio (uk.finance.yahoo.com), positioning it to both invest in land and weather a downturn.
Valuation and Comparables
Shares Below Book Value: Despite its profitability, KBH stock trades at a discount to the company’s net assets. Book value was about $61.53 per share as of Q1 2026 (investor.kbhome.com), up 8% year-on-year thanks to retained earnings and buybacks. With the stock recently around $54, the price-to-book ratio is roughly 0.87× (companiesmarketcap.com) – meaning investors can buy KB Home for less than its equity per share. This sub-1.0x P/B is a signal of market caution, but not unusual for homebuilders in a soft housing cycle (KBH’s P/B was ~1.5× at the end of 2022, compressing to 0.92× by end of 2025 as conditions cooled) (companiesmarketcap.com).
Earnings Multiple Reflects Cyclicality: By traditional earnings measures, KB Home also looks inexpensive. Its fiscal 2025 diluted EPS was $6.15 (www.sec.gov), which at the current stock price translates to a trailing P/E around 9×. Other large builders similarly sport single-digit P/E ratios, reflecting strong recent earnings and investor fears that those profits may pull back. In fact, analysts do expect a decline in near-term earnings: consensus for the upcoming year (2026) implies a forward P/E on the order of 12–14× (uk.finance.yahoo.com). This gap suggests that while the stock is cheap on last year’s earnings, the market is pricing in a slowdown in homebuilding profitability. For context, KB Home’s revenue and margins have already been under pressure – e.g. Q1 2026 earnings fell to $0.52 per share from $1.49 a year earlier (investor.kbhome.com) – so a moderation in full-year EPS is anticipated. Even so, at about 0.6× sales and under 10× EBITDA (uk.finance.yahoo.com) (uk.finance.yahoo.com), KBH remains valued on the low end of historical ranges. Any signs of stabilizing orders or margins could prompt a re-rating, as the stock’s deep value metrics are in part due to heightened pessimism about the housing cycle.
Peer Comparison: Relative to peers, KB Home’s valuation is in-line to slightly discounted. It focuses on entry-level and first-move-up homes, which tend to carry lower margins than luxury builders like Toll Brothers, and that is reflected in its multiples. For example, one analyst notes they prefer a luxury peer due to KBH’s near-term outlook, but acknowledges KBH’s shares already trade at a discount to book and have lagged the sector (seekingalpha.com) (seekingalpha.com). In general, most homebuilder stocks are priced for cautious scenarios even as fundamentals (like employment and housing undersupply) support long-term demand. Investors should thus weigh KBH’s low valuation against the risks that earnings could fall further if the housing market weakens.
Key Risks and Red Flags
Like all homebuilders, KB Home faces a number of risk factors that could pressure its results. Here are some of the main issues to keep in mind:
- Housing Affordability Challenges: High mortgage rates and elevated home prices have made monthly payments unaffordable for many buyers, especially first-timers – KB Home’s core customer base. The company “faces persistent headwinds from affordability challenges, weak consumer sentiment, and higher mortgage rates, particularly impacting its first-time buyer focus” (seekingalpha.com). If interest rates remain around 6–7% (as projected for 2025–2026) (www.axios.com), demand for KB’s price-sensitive homes may stay sluggish. The need for increased sales incentives or price cuts to drive volume (as seen in recent quarters) can erode profit margins.
- Margin Pressure and Cost Inflation: KB Home’s housing gross margin has been contracting under market pressure. In Q1 2026, the gross margin slid to 15.3% from 20.2% a year prior, due to price reductions, higher land costs, and less operating leverage on lower volume (investor.kbhome.com). While material and labor cost inflation has moderated from peaks, build costs remain higher than pre-pandemic, and any renewed rise (or the greater costs of meeting new energy efficiency standards) could squeeze margins (investor.kbhome.com) (investor.kbhome.com). The company did report success in reducing construction cycle times (investor.kbhome.com), which helps efficiency, but it may not offset broader margin headwinds if selling prices are under pressure. Lower margins mean less cushion to absorb shocks or write-downs.
- Declining Backlog and Orders: KB Home’s order backlog has thinned, which is both a red flag and a forward-looking risk. At the end of Q1, KB had 3,604 homes in backlog, down 19% from 4,436 a year earlier (backlog value down to $1.70B from $2.20B) (investor.kbhome.com). Net new orders in Q1 did tick up 3%, but that was with a higher community count and heavy use of incentives. A smaller backlog could translate to lower near-term revenue unless new orders accelerate. The company’s monthly sales pace (3.5 orders per community) is roughly flat year-on-year (investor.kbhome.com) – any slowdown from here, or a pickup in cancellation rates (which, encouragingly, have fallen to 12% from 16% (investor.kbhome.com)), would directly hit future deliveries. Investors should watch whether KBH’s pivot back to a pure build-to-order model impacts its ability to refill the backlog in a competitive market.
- Geographic Concentration: KB Home has outsized exposure to certain key markets, notably California, Texas, Arizona, and Florida. In fact, management has acknowledged that “adverse conditions in California would have particular significance to our business” given it generates the largest share of revenue and investment there (www.sec.gov) (www.sec.gov). California’s market has unique risks – from tougher affordability (state-level home prices and taxes), to regulatory and environmental hurdles that can slow development (www.sec.gov) (www.sec.gov). Likewise, any regional slump or shock (e.g. an oil downturn in Texas, hurricanes in Florida, etc.) could disproportionately affect KBH’s sales. This concentration risk means KB Home is less geographically diversified than some peers; trouble in one of its major states could weigh heavily on overall results.
- Economic and Credit Risks: A broader economic downturn or credit tightening is a perennial risk for homebuilders. If the U.S. enters recession or if lending standards tighten further, potential buyers may pull back. Also, KB Home’s own financing costs could rise if credit markets stress – though it has no need to issue new debt short-term, higher interest rates could eventually flow through its variable-rate borrowings. Notably, KBH capitalizes interest on homes under construction, which boosts reported earnings. Should the company slow its construction pace, interest costs might no longer be eligible for capitalization and would hit the income statement (www.sec.gov). This scenario played out in past housing downturns, suddenly increasing builders’ reported interest expense. Additionally, the company’s sizable land holdings (over 63,000 lots owned or optioned) (investor.kbhome.com)carry the risk of impairment: if home prices fall or certain land projects no longer pencil out, KB Home could face write-offs on land values like it did in the mid-2000s housing bust. While current conditions are far from that severe, it’s an ever-present risk in a cyclical, asset-intensive industry.
Open Questions for the Earnings Release
Finally, as KB Home reports earnings, investors should be looking for answers to several open questions that could determine the stock’s direction:
- Are Demand and Orders Rebounding? Management has expressed optimism about the spring selling season and reaching a peak community count to drive orders (investor.kbhome.com) (investor.kbhome.com). Did net order growth improve meaningfully in Q2, and how is the pace of sales per community trending? Any update on buyer traffic and affordability initiatives (e.g. mortgage rate buydowns) will be key to gauging demand health.
- Will Profit Margins Stabilize? With heavy discounting behind them, is KB Home seeing its housing gross margin bottom out around the mid-teens, or will there be further erosion? The company guided Q2 gross margin of 15.0–15.6% (investor.kbhome.com) – investors will want to see if they achieved this and whether margins could improve in the second half. Watch for commentary on pricing power vs. cost pressures, and any impact of lower lumber or material costs flowing through.
- Updated Outlook on Backlog and Deliveries: Management’s full-year guidance calls for 10,000–11,500 home deliveries in 2026 (investor.kbhome.com). With ~2,370 homes delivered in Q1 (investor.kbhome.com) and a similar pace guided for Q2, is KB Home confident in a second-half ramp-up to meet the high end of that range? The status of the backlog (units and average selling price) will indicate whether revenue is on track. Any change in cancellation trends or buyer incentives could color the revenue visibility for the next few quarters.
- Capital Allocation Plans: Given the softer earnings, will KB Home adjust its capital returns or investments? So far in 2026, the company has been repurchasing shares ( ~$50M in Q1 and targeting $50–$100M in Q2 (investor.kbhome.com) (investor.kbhome.com) ) even as it continues paying the dividend. It also pulled back on land spending (38% lower land investment YOY in Q1) (investor.kbhome.com). Investors will be curious if management sees opportunity to buy land at lower prices later this year – or if they’ll remain cautious and perhaps slow land acquisition further to conserve cash. Likewise, any hint of a dividend increase or change in buyback pace could signal confidence (or lack thereof) in the outlook. Thus far, KBH’s balanced approach to capital allocation has been a positive, and maintaining that balance in a weaker market will be a point of focus.
In summary, KB Home enters this earnings report with a solid financial foundation – a growing book value, manageable debt, and shareholder-friendly returns – but also with near-term challenges as the housing market works through affordability issues. The stock’s low valuation reflects many of these concerns, so what management says about orders, pricing, and margins “tomorrow” will be critical. Keep an eye on whether the company’s tone turns more optimistic or cautious. A stabilization in housing demand or any upside surprise in results could bode well for the undervalued shares, whereas continued headwinds may reinforce a patient stance. With a strong brand in entry-level homebuilding and decades of experience riding housing cycles, KB Home’s long-term story remains intact – but investors will want clarity on how 2026 is shaping up before jumping in. Earnings day will provide that clarity, making these highlighted areas important to watch.
Sources:
- KB Home Investor Relations – SEC Filings, Q1 2026 Results Press Release, Proxy/Annual Report (www.sec.gov) (www.sec.gov) (investor.kbhome.com) (investor.kbhome.com) (www.sec.gov) (www.sec.gov) (www.sec.gov) etc. - Nasdaq/PR Newswire – Dividend Declarations (www.nasdaq.com). - Yahoo Finance – Market and Valuation Data (uk.finance.yahoo.com) (uk.finance.yahoo.com) (uk.finance.yahoo.com). - Seeking Alpha – Analyst Commentary and Preview (seekingalpha.com) (seekingalpha.com). - KB Home 2025 10-K – Financial Statements and Risk Factors (www.sec.gov) (www.sec.gov) (www.sec.gov).
