On Feb 11, we maintained a Neutral rating on U.S. homebuilder,
) based on mixed fourth quarter results. KB Home also carries a
Zacks Rank #3 (Hold).
Why the Neutral Rating?
KB Home's adjusted net loss per share of 3 cents in the fourth
quarter missed the Zacks Consensus Estimate by 50%. Earnings,
however, improved significantly from the prior-year quarter loss
of 19 cents driven by top-line growth of 20% and reduced SG&A
ratio. Total revenue beat the Zacks Consensus Estimate of $571
Gross margins were, however, significantly below expectations
due to rising labor and material costs. The net order growth was
also slim due to declining community count. Over the past 4
quarters, KB Home has delivered an average surprise of
Following the release of mixed fourth quarter results, the
estimate revisions were also mixed. The Zacks Consensus Estimate
for 2013 has gone down 27% to 11 cents per share over the last 60
days. However, the Zacks Consensus Estimate for 2014 has
increased by 7.4% to $1.02 over the same timeframe.
With the housing fundamental improving, KB Home is witnessing
significant growth in both volumes and selling prices. Almost all
markets are showing recovery, though to varying degrees.
Moreover, the company is seeing increased demand for larger homes
with more design options, which is driving average selling prices
All these bode well for the company's profitability. KB Home
expects to increase its community count in 2013 as the current
aggressive land acquisition and development activities are
converted into open communities.
The company expects to be profitable in 2013 and hopes for
meaningful revenue growth in the year with increased community
count, rising ASPs, higher revenue per community, higher backlog
and improving housing momentum.
All said, the increase in demand still remains at historically
low levels due to current weak U.S. economic conditions and tight
mortgage lending standards. Sustainable increases in housing and
housing demand for the long term will require the overall economy
to strengthen, including further job growth.
Alongside, the pending federal budget decisions could
potentially disrupt the housing recovery. A sustainable housing
recovery in the long term can be achieved only through a
broad-based improvement in the overall economy, which we believe
will take time. Moreover, the company's net order growth rates
are slower than that of the larger and better positioned
Other Stocks to Consider
Besides KB Home, other stocks in the housing sector that are
currently performing well include
) - Zacks Rank #1 (Strong Buy),
DR Horton Inc.
) - Zacks Rank #2 (Buy) and
Hovnanian Enterprises Inc
) - Zacks Rank #2 (Buy).
D R HORTON INC (DHI): Free Stock Analysis
HOVNANIAN ENTRP (HOV): Free Stock Analysis
KB HOME (KBH): Free Stock Analysis Report
NVR INC (NVR): Free Stock Analysis Report
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