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KB Home (KBH) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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KB Home (KBH)

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Intrinsic Value (DCF)

Current$62.24
→
Intrinsic$130.13
+109%
$83.99$130.13$217.68
Market implies 8% growth for 5 years
DCF analysis suggests KBH could have 109% upside at 24% growth — verify assumptions match your view.
At $62, the market prices in 8% annual cash flow growth — a moderate expectation aligned with historical trends (24%).
Range: Bear $84 → Bull $218. Current price implies expectations below the bear case — very conservative expectations.
Discount ↓Growth →20%22%24%26%
8%$163$178$193$209
10%$110$120$130$141
12%$80$88$95$104
14%$62$67$74$80

Bull Case

  • Bull case ($218) offers 250% upside at 29% growth, 9% discount
  • Price below even worst-case scenario — strong margin of safety
  • Market-implied growth (8%) ≤ historical CAGR (24%)

Bear Case

  • Bear case ($84) with 19% growth, 12% discount rate
  • Using 24% growth — aggressive, watch for mean reversion
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5-Year Free Cash Flow Projection

Year 1$401.94M
Year 2$499.53M
Year 3$620.81M
Year 4$771.55M
Year 5$958.88M
Terminal$14.11B

📐 Model Inputs

Growth Rate24.3%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate10.0%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$323.41MTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is KBH stock undervalued or overvalued?
🟢 UNDERVALUED

KBH trades at $62.24 vs. our DCF-derived intrinsic value of $108.56, implying +90% upside. At a 10.0% WACC and 24.3% projected FCF growth, the market appears to be underpricing the present value of KBH's future cash flows. The bear case ($66.23) still suggests upside, providing margin of safety.

What is KBH's intrinsic value?

Using a 5-year DCF model: Base FCF of $323M, projected at 24.3% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 10.0% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $1.11B net debt and dividing by 0.08B shares: Bear $66.23 | Base $108.56 | Bull $170.91. Current price $62.24 implies +90% to base case.

How is KBH's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 24.3% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=10.0%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($9.47B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 29.3x.