KB Home's (KBH) "build-to-order" model, which primarily serves first-time and first move-up buyers, is a key advantage over the long term, Oppenheimer said in a report Wednesday.

Oppenheimer initiated coverage of KB Home with a perform rating and also commended the company's flexible land acquisition strategy that supports future expansion, while highlighting its share repurchases as a positive example of effective capital allocation, the report said.

However, the investment bank also identified several disadvantages in the current housing market. A key concern is the company's geographic concentration, with more than 40% of its revenue coming from the West Coast, primarily California, where market trends have recently softened.

The homebuilder has also reduced base prices to offset fewer incentives, but the strategy may struggle amid stretched affordability and rising mortgage-rate sensitivity, Oppenheimer said.

Oppenheimer forecasts a mid-single-digit earnings per share decline next year and return on equity slipping to 10%, below the sector average. Shares currently trade around the firm's estimated book value per share for the next 12 months, suggesting a balanced risk/reward profile, the report said.

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