KB Home (KB) Hits a New 52-Week High on Solid Q1 Earnings

Shares of KB HomeKBH scaled a new 52-week high of $19.90 on Mar 24. The homebuilding company's stock rose 22.5% in the last three months, outperforming the Zacks categorized Building-Residential/Commercial industry's gain of 16.2%.

What's Driving It?

On Mar 23, KB Home reported better-than-expected first-quarter fiscal 2017 earnings after the closing bell. The company's earnings and revenues grew 7.1% and 20.7% year over year, respectively, buoyed by strong demand.

The company started 2017 with an impressive 20.7% growth in revenues and double-digit rise in deliveries and housing revenues. Strong orders in value (up 32%) and backlog (up 25%) bode well for KB Home in 2017. Regionally, operations in the West Coast have been the most encouraging. A healthy housing industry and strong demand trends in the markets served by KB Home drove the quarterly results.

Notably, the company's backlog totaled 4,776 homes (as of Feb 28, 2017), up 11.5% year over year. Potential housing revenues from backlog increased 25.1% to $1.79 billion, with all the regions registering double-digit gains, barring Central and Southeast. This marks the company's highest first-quarter backlog value since 2007.

The company remains focused on its core KB2020 business strategy which aims to boost its existing geographic footprint, improve profitability per unit, generate higher operating margin and drive earnings, while generating positive cash flow to redeploy for growth and debt reduction.

KB Home continues to drive healthy leverage from its expanding revenue base, generating 160 basis point improvement in SG&A ratio to 11.5% in the quarter. This is the lowest first-quarter SG&A ratio in the company's history, thereby illustrating the increasing scale of its business.

Apart from solid performance of KB Home, new home sales surged to a seven-month high in February, indicating a gradual recovery of the housing market on strong demand. According to the latest joint release from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, new home sales grew to a seasonally adjusted annual rate of 592,000 last month. This reflects a 6.1% increase from January's 558,000 units, and an increase of 12.8% from 525,000 in Feb 2016.

Hence, the 2017 outlook for the U.S. homebuilding industry is quite compelling given the affordable interest rates, along with impressive housing starts and new home sales data. Resilient job growth, healthy demand-supply balance along with seemingly high homebuilders' confidence add to the momentum.

Coming to KB Home, the stock boasts a solid 3-5 year expected EPS growth of 15.13% and also flaunts a VGM score of "A". Additionally, the earnings estimates for the current year and the next have moved north by 1.3% and 2.2%, respectively, in the last seven days.

KB Home beat earnings estimates in all the past four quarters, the average being 7.30%.

Zacks Rank & Key Picks

KB Home currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the sector are NVR, Inc. NVR , PulteGroup, Inc. PHM and D.R. Horton, Inc. DHI .

For full-year 2017, NVR expects earnings to increase 23.6%. NVR sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

D.R. Horton is expected to witness 15.6% growth in fiscal 2017 earnings and PulteGroup is expected to register an earnings growth rate of 31.5% for the current year. Both D.R. Horton and PulteGroup carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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