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Bull of the Day: KB Home (KBH)

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KB Home (KBH - Free Report) is still seeing strong demand despite rising mortgage rates. This Zacks Rank #1 (Strong Buy) is expected to see earnings jump 45% as a strong job market continues to underpin the US housing market.

KB Home is one of the largest homebuilders in the United States with developments in 36 markets in 7 states. It specializes in first time buyers, move-up buyers and active adults. It is headquartered in Los Angeles.

Another Beat in the Fiscal First Quarter

On Mar 22, KB Home reported its fiscal first quarter 2018 results and beat the Zacks Consensus Estimate for the 9th quarter in a row.

Earnings were $0.40 compared to the Zacks Consensus of $0.30, or a 33% beat.

Revenue rose 6% to $871.6 million even as deliveries remained flat at 2,223 homes.

The average selling price continues to rise, jumping 7% to $389,800, even though the company is focusing on first time buyers.

Housing gross profit margin expanded 150 basis points to 16.1%.

Net orders, which is a key metric for home builders, rose 8% to 2,784. Three of the company's 4 regions saw year-over-year increases in net order value.

Company-wide, net order s per community averaged 4.2 per month, up 17% from its prior rate of 3.6 per month.

The backlog has soared, adding 10% to $1.97 billion. That's the highest end of first quarter backlog for the company in 11 years.

Analysts are Bullish on 2018 and 2019

The analysts liked everything they heard from KB Home this quarter. It was among the first home builders to report earnings since the big spike in mortgage rates earlier in the year so there had been some worries going into the report.

But that rate increase isn't dampening demand, so far.

4 estimates have been raised for fiscal 2018 since the earnings report, pushing the 2018 Zacks Consensus Estimate up to $2.69 from $2.40.

KB Home made $1.85 last year, which was one of the strongest years for the company since the Great Recession. And even still, earnings are expected to rise 45% in 2018.

Analysts are bullish on fiscal 2019 as well with 4 estimates also moving higher over the last week. That has pushed the 2019 Zacks Consensus up to $3.35 which would be another 25% year over year increase.

Shares Come Back Down to Earth

KB Home was one of the hottest stocks of 2017 as shares soared on hopes of tax cuts and the strong economy.



They are coming back down to earth in 2018.

Shares have fallen 14% year-to-date and continue to slide, despite the strong earnings report.

But this could be a buying opportunity.

KB Home is cheap. It trades with a forward P/E of just 10.5 and has a PEG of 0.7. A PEG under 1.0 usually indicates value.

For those who missed last year's home builder stock run, you might want to give KB Home another look in 2018.

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