) is set to report third-quarter fiscal 2013 results on Sep 24,
before the market opens. Last quarter, it posted a 20% positive
surprise. Let's see how things are shaping up for this
Factors to Consider This Quarter
KBH management expects to achieve meaningful profits in the
second half of fiscal 2013 on the back of its strategic growth
plans and strong housing fundamentals comprising steady demand
and constrained supply. Its strong land position, significant
financial flexibility, increased community count, rising average
selling prices (ASPs), solid backlog position and increasing
margins and selling, general & administrative leverage are
expected to boost profitability. Moreover, ASPs are expected to
improve both year over year and sequentially in all the remaining
quarters of fiscal 2013.
However, we believe that the negative momentum surrounding the
housing industry currently is due to rising interest/mortgage
rates. High interest rates dilute the demand for new homes, as
mortgage loans becomes expensive thereby lowering a buyer's
purchasing power. This can hurt volumes, revenues and profits of
homebuilders. Since May, mortgage/interest rates are edging
upward to more normalized levels, raising concern among some
Moreover, aspate of mixed data releases since late July has
created volatility in the homebuilding market.
Our proven model does not conclusively show that KB Home is
likely to beat earnings this quarter. That is because a stock
needs to have both a positive Earnings ESP (Read:
) and a Zacks Rank #1, 2 or 3 for this to happen. That is not the
case here, as you will see below.
Negative Zacks ESP:
The Earnings ESP is -10.00%.
Zacks Rank #3 (Hold):
KB Home carries a Zacks Rank #3 (Hold) which lowers the
predictive power of ESP because a Zacks Rank #3 (Hold) when
combined with a negative ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated
stocks) going into the earnings announcement, especially when the
company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other housing companies which you may want to
consider, as our model shows they have the right combination of
elements to post an earnings beat this quarter:
), Earnings ESP of +6.52% and a Zacks Rank #3 (Hold).
Hovnanian Enterprises Inc.
), Earnings ESP of +6.25% and a Zacks Rank #3 (Hold).
Taylor Morrison Home Corporation
), Earnings ESP of +2.63% and a Zacks Rank #3 (Hold).
HOVNANIAN ENTRP (HOV): Free Stock Analysis
KB HOME (KBH): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis
TAYLOR MORRISON (TMHC): Free Stock Analysis
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