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KB Home (KBH) Enters Titusville With Verona, Ups Community Count

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KB Home (KBH - Free Report) recently announced the opening of a new single-family home community — Verona — situated in the neighbourhood of Orlando. This marks its entry into the Titusville market. Verona’s location is easily commutable to Highway 528, Highway 520, Interstate 95, State Road A1A and space coast beaches. The community offers its homebuyers with conservation and water views, as the place is in close proximity to various outdoor activities and beautiful beaches.

The houses at Verona display features like gourmet kitchens overlooking good widespread rooms and master suites with walk-in closets. The community provides one and two-story floor plans that consist of up to five bedrooms and three baths, with a floor area close to 1200-2500 square feet. Verona offers homebuyers the chance to customize their new home according to their choice and control. The community at Titusville starts from the affordable price tag of $250,000.

KB Home is one of the largest and most recognized homebuilders in the United States for the past 60 years. With the addition of these new communities, the company now operates in 42 markets across eight states and serves a wide range of buyer groups. KB Home is the first builder to make every home ENERGY STAR certified.

Community Expansion: Major Growth Driver

The company invests aggressively in land acquisition and development, mainly in high-end locations, which is critical for community count as well as top-line growth. Owing to a temporary pause in land development and construction activity, the company’s average community count for third-quarter 2020 decreased 7% year over year to 238. Quarter-end community count of 232 was down 9% from a year ago. Nonetheless, it has been working hard to rebuild community count, with more than 30 new community opening planned for the fourth quarter.

During the third quarter, its monthly absorption pace per community accelerated to 5.9 net orders, representing a year-over-year increase of 36%. This was its highest pace attained in any quarter in more than a decade despite increased prices in vast majority of communities.

Additionally, KB Home anticipates 135 new communities for 2021, the highest annual number of openings in many years. The composition of its portfolio continues to be strengthened, with core communities expected to represent 95% of 2021 count.

For 2021, with expected higher year-end backlog, strong order pace per community and more normalized cycle times, KB Home expects to generate full-year housing revenues in the range of $5.1-$5.5 billion.

Price Performance

Shares of the company have surged 12.8% in the past six months compared with the industry’s 21.1% rally. Nonetheless, earnings estimates have increased 0.9% over the past 60 days, depicting analysts’ optimism over the company’s growth potential.

Moreover, backlog of $2.57 billion (as of as of Aug 31, 2020), ongoing execution of returns-focused growth plan, balanced approach of allocating cash flow and improvement in gross margin are expected to drive growth. It is focused on core KB2020 business strategy, which aims to boost scale in the existing geographic footprint, improve profitability per unit, generate higher operating margin, and drive earnings while generating positive cash flow to redeploy for growth and debt reduction.

Zacks Rank & Other Key Picks

Currently, KB Home carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other top-ranked stocks in the Zacks Building Products - Home Builders industry include D.R. Horton, Inc. (DHI - Free Report) , Lennar Corporation (LEN - Free Report) and Beazer Homes USA, Inc. (BZH - Free Report) , each sporting a Zacks Rank #1.

D.R. Horton’s fiscal 2021 earnings are expected to rise 23.6%.

Lennar’s fiscal 2021 earnings are expected to rise 8.3%.

Beazer Homes surpassed earnings estimates in three of the trailing four quarters, with the average surprise being 211.5%.

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