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KB Home (KBH) Stock Up 18% Over a Year: Can it Gain Further?
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Impressive earnings trend, Returns-Focused Growth Plan, and built-to-order approach, along with a healthy housing industry and strong demand bode well for KB Home (KBH - Free Report) . Consequently, shares of the company have gained 18.3% in the past year against its industry’s decline of 1.3%. However, rising costs and interest rate pose concerns. Let’s delve deeper.
Catalysts Driving Growth
Since 2016, KB Home is in line with its Returns-Focused Growth Plan, which is designed to drive homebuilding revenues and operating margin, return on invested capital, return on equity and leverage ratio. The main components of this plan are executing the company’s core business strategy, improving asset efficiency and monetizing significant deferred tax assets. It is targeting 10-15% return on equity for 2019.
Moreover, the Zacks Rank #3 (Hold) company believes that in 2019, it will be able to rake in more than $5 billion of homebuilding revenues, and achieve operating margin of 8-9%, gross margin of 17.5-18.2%, selling, general and administrative expense ratio of 9-9.5%, return on invested capital of more than 10%, and net debt-to-capital ratio of 40-50% on the back of the Returns-Focused Growth Plan. Also, its core KB2020 business strategy is aimed at boosting scale in existing geographic footprint, improving profitability and operating margin, driving earnings and generating positive cash flow to attain growth and debt reduction.
KB Home’s highly consumer-centric Built-to-Order approach provides a wide range of choices to buyers in the major aspects of their future home along with a personalized customer experience through in-house community teams. In addition to gaining a competitive advantage over peers, the approach has led KB Home to enjoy low-cost production.
On the other hand, the company believes in pursuing regular acquisition and development, mainly in high-end locations, which is critical for community count as well as top-line growth. Over the past 18 months, since the inception of its growth plan, the company invested 2.4 billion in land acquisition and development.
We believe that the robust hosing industry will continue to drive its performance in the near future. Meanwhile, steady job and wage growth, a recovering economy, rising rentals, rapidly increasing household formation and a limited supply of inventory point toward strong near-term demand. Although the recent interest rate hike has raised doubts over the future of home prices, the rates should remain reasonable, in our view, keeping housing affordable. Modest hikes in interest rates can be a positive for the housing sector, as it is a result of increased economic growth expectations. A booming economy boosts income as well.
Hurdles to Cross
Although the company remains strong on the aforementioned factors, rising costs and interest rates remain a major concern. Labor shortages are leading to higher wages and delays in construction, eventually hurting the number of homes delivered. Also, land prices are increasing due to limited availability. Moreover, the recently imposed lumber tariff on imported steel and aluminum is a concern, as it will escalate raw material cost for home builders, who are already grappling with increased costs.
PulteGroup has an expected current-year earnings growth rate of 61.2%.
D.R. Horton’s earnings for 2018 are expected to grow 41.2% year over year.
Century Communities surpassed earnings estimates in each of the trailing four quarters, with an average positive surprise of 55.3%.
5 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2018 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs. A bonus Zacks Special Report names this breakthrough and the 5 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains.
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KB Home (KBH) Stock Up 18% Over a Year: Can it Gain Further?
Impressive earnings trend, Returns-Focused Growth Plan, and built-to-order approach, along with a healthy housing industry and strong demand bode well for KB Home (KBH - Free Report) . Consequently, shares of the company have gained 18.3% in the past year against its industry’s decline of 1.3%. However, rising costs and interest rate pose concerns. Let’s delve deeper.
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Catalysts Driving Growth
Since 2016, KB Home is in line with its Returns-Focused Growth Plan, which is designed to drive homebuilding revenues and operating margin, return on invested capital, return on equity and leverage ratio. The main components of this plan are executing the company’s core business strategy, improving asset efficiency and monetizing significant deferred tax assets. It is targeting 10-15% return on equity for 2019.
Moreover, the Zacks Rank #3 (Hold) company believes that in 2019, it will be able to rake in more than $5 billion of homebuilding revenues, and achieve operating margin of 8-9%, gross margin of 17.5-18.2%, selling, general and administrative expense ratio of 9-9.5%, return on invested capital of more than 10%, and net debt-to-capital ratio of 40-50% on the back of the Returns-Focused Growth Plan. Also, its core KB2020 business strategy is aimed at boosting scale in existing geographic footprint, improving profitability and operating margin, driving earnings and generating positive cash flow to attain growth and debt reduction.
KB Home’s highly consumer-centric Built-to-Order approach provides a wide range of choices to buyers in the major aspects of their future home along with a personalized customer experience through in-house community teams. In addition to gaining a competitive advantage over peers, the approach has led KB Home to enjoy low-cost production.
On the other hand, the company believes in pursuing regular acquisition and development, mainly in high-end locations, which is critical for community count as well as top-line growth. Over the past 18 months, since the inception of its growth plan, the company invested 2.4 billion in land acquisition and development.
We believe that the robust hosing industry will continue to drive its performance in the near future. Meanwhile, steady job and wage growth, a recovering economy, rising rentals, rapidly increasing household formation and a limited supply of inventory point toward strong near-term demand. Although the recent interest rate hike has raised doubts over the future of home prices, the rates should remain reasonable, in our view, keeping housing affordable. Modest hikes in interest rates can be a positive for the housing sector, as it is a result of increased economic growth expectations. A booming economy boosts income as well.
Hurdles to Cross
Although the company remains strong on the aforementioned factors, rising costs and interest rates remain a major concern. Labor shortages are leading to higher wages and delays in construction, eventually hurting the number of homes delivered. Also, land prices are increasing due to limited availability. Moreover, the recently imposed lumber tariff on imported steel and aluminum is a concern, as it will escalate raw material cost for home builders, who are already grappling with increased costs.
Stocks to Consider
Some better-ranked stocks in the Home Builders industry are PulteGroup, Inc (PHM - Free Report) , D.R. Horton, Inc. (DHI - Free Report) , both sporting a Zacks Rank #1 (Strong Buy), and Century Communities, Inc. (CCS - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
PulteGroup has an expected current-year earnings growth rate of 61.2%.
D.R. Horton’s earnings for 2018 are expected to grow 41.2% year over year.
Century Communities surpassed earnings estimates in each of the trailing four quarters, with an average positive surprise of 55.3%.
5 Companies Verge on Apple-Like Run
Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2018 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade which could in turn save $200 billion in U.S. healthcare costs. A bonus Zacks Special Report names this breakthrough and the 5 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains.
Click to see them right now >>