) is set to report fourth quarter and full-year 2013 results on
Dec 19. Last quarter, it reported a positive earnings surprise.
Let's see how things are shaping up for this announcement.
Factors to Consider This Quarter
During the past few quarters, KB Home has shifted its focus from
sales growth to margin improvement as orders and revenue growth
have been weak for some time.
With the recent improvement in economic conditions and the
housing market in general, mortgage rates are edging up toward
more normalized levels since May. High interest rates dilute the
demand for new homes, as mortgage loans become expensive, thus
lowering a buyer's purchasing power. Accordingly, the sharp
increase in interest rates shocked many customers and a few put
off their purchase decision, thus increasing cancellation rates
and lowering orders for many homebuilders.
In a scenario where home prices are continuously rising,
management is emphasizing more on price and margin improvement to
optimize returns from its land assets. The reduced focus on sales
has also led to lower unit growth in the third quarter.
Despite the rising interest rates, KB Home expects meaningful
profits in the fourth quarter on the back of its strategic growth
plans and strong housing fundamentals comprising steady demand
and constrained supply. However, we believe that order trends
will not improve from past levels in the fourth quarter.
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 expected surprise
and a Zacks Rank of #1, 2 or 3 for this to happen. That is not
the case here as you will see below.
Negative Zacks ESP:
KB Home currently has an ESP of -13.33%.
Zacks Rank #3 (Hold):
KB Homes' Zacks Rank #3 (Hold) when combined with a negative ESP
makes positive surprise prediction difficult.
We caution against stocks with Zacks Ranks #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 construction companies which you may
consider, as our model shows they have the right combination of
elements to post an earnings beat in the upcoming quarter:
KB HOME (KBH): Free Stock Analysis Report
MDC HLDGS (MDC): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis
RYLAND GRP INC (RYL): Free Stock Analysis
To read this article on Zacks.com click here.
Ryland Group Inc.
), with Earnings ESP of +6.09% and a Zacks Rank #3 (Hold)
), with Earnings ESP of +10.64% and a Zacks Rank #3 (Hold)
MDC Holdings Inc.
), with Earnings ESP of +33.87% and a Zacks Rank #3 (Hold)