KB Home (KBH) Hits A New 52-Week High On Solid Q2 Earnings

KB Home (NYSE:KBH) hit a 52-week high of $24.09 on Jun 28, following its second-quarter fiscal 2017 results on Jun 27. The company’s stellar quarterly performance with sustained margin improvement has raised optimism about the stock’s potential.

The company reported second-quarter fiscal 2017 earnings of 33 cents per share surpassing the Zacks Consensus Estimate of 26 cents by 26.9%. The company’s total revenue of $1 billion also came in above analysts’ expectation of $922 million by 8.8%.

Earnings in the reported quarter also increased by a significant 94% from the year-ago profit level of 17 cents. The upside was primarily driven by an ongoing housing market recovery and favorable industry fundamentals.

The company ended the quarter with an impressive 24% revenue growth and double-digit rise (11%) in deliveries and housing revenues (23.3%). Strong orders in value (up 15%) and backlog (up 19%) also bode well.

Meanwhile, its adjusted housing gross profit margin (excluding the amortization of previously capitalized interest and inventory-related charges) expanded 30 basis points (bps) year over year. This was mainly attributed to 11% rise in average selling price or ASP. Again, adjusted homebuilding operating margin (after excluding inventory-related charges) increased 90 bps year over year.

We appreciate the company’s strategy to boost scale in existing geographic footprint, improve profitability per unit, generate higher operating margin and drive earnings, while simultaneously generating positive cash flow to invest in growth and debt reduction.

It is evident from KB Home’s raised outlook for the current year. The company increased its projection for its homebuilding revenues, ASP, housing gross margin, as well as homebuilding operating margin for fiscal 2017.

Management further reiterated its confidence in the housing market banking on the first half of fiscal 2017 performance. According to Jeffrey Mezger, chairman, president and chief executive officer of KB Home, “Recent improvements in consumer sentiment and employment, combined with relatively low mortgage interest rates, are signaling further strength in the demand for housing.”

Share Price Performance

KB Home’s shares have gained 52.2% year to date compared with 25.1% growth for the Zacks categorized Building-Residential/Commercial industry. A healthy housing industry and strong demand trends in the markets served by KB Home should drive the stock’s performance in the upcoming quarters as well.



Zacks Rank

KB Home currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

You can consider a few other top-ranked stocks from the broader construction sector.

Summit Materials, Inc. (NYSE:SUM) sports a Zack Rank #1 (Strong Buy). Its earnings are expected to grow 43% this year. You can see the complete list of today’s Zacks #1 Rank stocks here.

U.S. Concrete, Inc. (NASDAQ:USCR) carries a Zacks Rank #2. Its earnings beat estimates in two of the trailing four quarters, delivering an average positive surprise of 72.26%. Its earnings are expected to grow 51.2% this year.

CEMEX, S.A.B. de C.V. (NYSE:CX) also carries a Zacks Rank #2. Its earnings are expected to increase 37.3% this year.

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