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Shares of homebuilder KB Home (KBH - Analyst Report) reached a 52-week high of $24.82 on Tuesday, May 14, 2013, gaining momentum from solid first-quarter fiscal 2013 results announced on Mar 21. Moreover, this Zacks Rank #2 (Buy) stock has a bright outlook for the rest of the year with improving housing fundamentals. The closing price of the shares on May 14 was $24.82, yielding a superb year-to-date return of 52.7%.

Share Price Drivers

Estimates have been rising for KB Home since it reported strong first-quarter fiscal 2013 results, beating the Zacks Consensus Estimate for both revenues and earnings.

KB Home’s first quarter adjusted loss of 16 cents per share was 30.4% narrower than the Zacks Consensus Estimate. The reported loss was also narrower than the year-ago loss of 51 cents per share. The significantly improved bottom-line results were driven by higher homebuilding revenues, improved housing gross margin and reduced selling, general and administrative (SG&A) expense ratio.    

Total revenue increased 59% year over year in the first quarter of 2013, driven by higher number of homes closed and hike in average selling prices. The top-line quarterly results 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 average selling prices significantly.  

In addition to this, management has a bright outlook for the rest of the year 2013 and expects improved profitability on the back of increased community count, rising average selling prices, higher revenue per community, higher backlog and improving housing momentum. The company is also benefiting from its strategy of aggressive land investments and shift toward larger and higher priced homes. These strategies ensure that the company is able to capitalize on growing momentum of market recovery as demand and prices of homes escalate.

The robust quarterly results and a promising outlook for the upcoming quarters led to an upward bias in estimate revisions. In fact, the Zacks Consensus Estimate for 2013 and 2014 increased a respective 210% and 10.4% to 31 cents and $1.17 per share over the last 60 days. Moreover, KB Home has beaten the Zacks Consensus Estimate in three out of the past four quarters, with an average surprise of 8.88%.

Other Stocks to Consider

Other stocks in the homebuilding sector that are performing well and deserve a mention include Ryland Group Inc. (RYL - Snapshot Report), DR Horton Inc. (DHI - Analyst Report) and Meritage Homes Corporation (MTH - Snapshot Report), all carrying a Zacks Rank #1 (Strong Buy).

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