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Shares of KB Home (KBH - Analyst Report) reached a 52-week high of $24.32 on Friday, May 03, 2013 gaining momentum from solid first quarter results announced on Mar 21. Moreover, the homebuilder has a bright outlook for the rest of the year. The closing price of the shares on May 03 was $24.02, yielding a superb year to date return of 47.8%.

Share Price Drivers

Estimates have been rising higher for KB Home after it reported strong first-quarter 2013 results on the back of double-digit increases in home sales, prices, gross margin expansion and solid overhead leverage.   

KB Home’s first quarter 2013 adjusted loss was narrower than the Zacks Consensus Estimate loss per share and the year-ago loss per share. The year-over-year improvement was driven by higher homebuilding revenues, improved housing gross margin and reduced selling, general and administrative (SG&A) expense ratio. Total revenue was higher than the year-ago quarter and the Zacks Consensus Estimate. Total revenue increase was driven by higher number of homes closed and hike in average selling prices.

The company benefited from management’s strategy to focus on highly sought-after land constrained housing markets. The company offered larger homes to first time and move up buyers, which helped in raising the average selling prices significantly. The company also witnessed strong gross margin expansion and solid overhead leverage during the quarter.

Based on the assumption that the housing recovery will continue to gain momentum, the company intends to improve its supply side in order to benefit from the increase in housing demand in the upcoming quarters. As such, the company expects to open more than 120 communities in 2013. It expects its community count to increase 15% for the year and sequentially in each quarter in 2013. The company expects its land investment to exceed $1 billion for fiscal 2013.  Owing to improving operating leverage, gross margin is expected to improve sequentially from the second quarter and thereafter improve in the subsequent quarters in fiscal 2013.

The robust quarterly results and a promising outlook for the upcoming quarters led to an upward movement in estimates. In fact, the Zacks Consensus Estimate for 2013 and 2014 increased a respective 12.5% and 13.2% to 27 cents and $1.20 over the last 30 days.

KB Home carries a Zacks Rank #2 (Buy).  

Other stocks in the homebuilding sector that are performing well and therefore deserve a mention include D. R. Horton Inc. (DHI - Analyst Report), Ryland Group Inc. (RYL - Snapshot Report) and MDC Holdings Inc. (MDC - Snapshot Report). While D. R. Horton and Ryland Group carry a Zacks Rank #1 (Strong Buy), MDC holds Zacks Rank #2 (Buy).


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