KB Home Opens Single-Family Homes in Austin, Eyes Expansion

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In a bid to boost community count, KB HomeKBH recently announced the opening of one and two-story single-family home community named Highlands at Grist Mill in Uhland, Texas. It is located between State Highway 21 and Interstate 35 and lies in close proximity to recreational and entertainment destinations near Lake Kyle.

The community offers 17 discrete floor plans, at a starting price of $190,000. These new home communities allow homebuyers to design and implement features and amenities of their choice. Moreover, these communities will be built per the latest ENERGY STAR guidelines and will include WaterSense label. This is expected to result in savings of $780-$1,440 per annum in utility costs, for homebuyers, per the floor plan.

Rationale Behind

KB Home, one of the largest homebuilders in the United States, has delivered more than 600,000 homes in 36 markets across eight states. KB Home is a highly consumer-centric company focused on the Built-to-Order approach, which provides buyers with a wide range of choices. The latest move underscores KB Home's aim to boost single-family home count that would drive net orders and in turn revenues.

Notably, the company's total revenues of $1.22 billion improved 7.1% year over year in the third quarter of fiscal 2018. Also, net orders increased 3% to 2,685 homes in the quarter, rising in the Central and Southeast regions, while net orders declined in West Coast and Southwest regions. In fact, total number of homes delivered rose 8% from the year-ago level to 2,988 units in the quarter. The company's backlog at the end of the quarter totaled 5,484 homes, up 0.5% from a year ago.

Moreover, the company believes that in 2019, it will record housing revenues of $5 billion to $5.3 billion, with average community count growth of 10-15% year over year, homebuilding operating income margin of 8-9%, housing gross profit margin of 17.5-18.2%, selling, general and administrative expense ratio of 9-9.5%, return on invested capital in excess of 10%, and net debt to capital ratio of 40-50% owing to the Returns-Focused Growth Plan.

However, rising construction and labor costs, pricing pressure and the recently imposed tariff on imported steel and aluminum are likely to eat into margins. Shares of KB Home have declined 38%, underperforming the industry 's decline of 30.6% in a year.

We believe that the company's commitment toward expansion and differentiated customer offerings lends it a competitive edge over peers and will drive growth.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Construction sector include Great Lakes Dredge & Dock Corporation GLDD , KBR, Inc. KBR and EMCOR Group, Inc. EME . While Great Lakes sports a Zacks Rank #1 (Strong Buy), KBR and EMCOR both carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Great Lakes' 2018 earnings are expected to increase 111%.

KBR has surpassed earnings estimates in three of the past four quarters, the average positive surprise being 12.6%.

EMCOR has a projected earnings growth rate of 20% for the current year.

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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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