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Here's Why Investor Should Buy KB Home (KBH) Stock Right Now
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The U.S. housing market is indeed traveling through a rough patch characterized by rising mortgage rates, supply-chain disruptions, material cost inflation and higher wages. Nonetheless, homebuilders like KB Home (KBH - Free Report) are navigating these headwinds well with prudent growth plans, a solid existing geographic footprint and a built-to-order approach.
Shares of this Los Angeles, CA-based homebuilder have gained 19.5% over the past three months compared with the Zacks Building Products - Home Builders industry’s 14.9% rise.
This Zacks Rank #2 (Buy) stock has a long-term earnings growth rate of 7.1%, which highlights its inherent strength. We believe that KB Home offers a sound investment opportunity, as evident from its VGM Score of A.
The Zacks Consensus Estimate has witnessed an uptrend over the past 30 days as analysts raised their estimates. Over the said time frame, the Zacks Consensus Estimate of $4.97 and $5.21 for 2023 and 2024 has increased 20.6% and 19.2%, respectively.
Image Source: Zacks Investment Research
What Makes the Stock an Attractive Pick?
Slightly Improving Builders’ Sentiment: Builders are now cautiously optimistic for 2023 as a lack of existing inventory is shifting demand to the new home market. Although builders continue to grapple with high construction costs and material supply chain disruptions, they continue to witness strong pent-up demand as buyers wait for interest rates to drop and turn more to the new home market due to a shortage of existing inventory.
Although builder confidence in the market for newly-built single-family homes in March remains below 50, it rose two points to 44, according to the National Association of Home Builders /Wells Fargo Housing Market Index released recently. This is the third straight monthly increase in builder sentiment levels.
KBH believes that it remains well positioned to achieve its full-year revenues expectation supported by ending backlog value of $3.3 billion, higher community count, and the expectation of current housing market conditions continuing for the rest of the year. The company also expects improvement in supply chain performance and build times.
Built-to-Order Approach Gives Competitive Advantage: The company’s Built-to-Order process provides buyers with a wide range of choices in the major aspects of their future home and a personalized customer experience through in-house community teams.
The company initiates construction only after a purchase agreement has been executed. This reduces inventory risk, enhances efficiencies in construction and provides greater visibility as well as predictability on future deliveries. The company’s built-to-order homes help it generate higher revenues from premiums (lots, plans, and elevations) as well as a design studio and structural options.
Solid Geographic Footprint: KBH’s existing geographic footprint offers the potential for substantially larger scale in markets. Although KB Home is perceived to be a California builder, its business is becoming more diversified. The company’s Southeast region has grown into a larger business, approaching 20% of revenues in the fiscal first quarter compared to only 11% five years ago. This region has significantly improved its profitability and returns in the last five years. Again, during the quarter, KBH achieved its first deliveries in Charlotte, which is a dynamic and growing top 10 housing market.
KB Home has a strong land pipeline and thus expects the fiscal second-quarter end community count to be up 15-20%. For fiscal 2023, the metric is expected to be up in the low-double-digit percentage range.
Other Key Picks
Some other top-ranked stocks in the same space are:
Taylor Morrison Home Corporation’s (TMHC - Free Report) ongoing operational enhancements, acquisition synergies and robust pricing power have more than offset the inflationary pressure and delays in some closings.
TMHC currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its 2023 earnings has been upwardly revised to $6.46 per share from $5.47 over the past 30 days. Shares of the company have gained 17.6% in the past three months.
Based in Horsham, PA, Toll Brothers, Inc. (TOL - Free Report) is a leading builder of luxury homes. The company has been benefiting from its strategy of broadening its product lines, price points and geographies. Also, it has been gaining from the lack of competition in the luxury new home market, its build-to-order approach and a solid backlog.
TOL currently carries a Zacks Rank #2. Earnings estimates for fiscal 2023 have increased to $8.66 per share from $7.87 over the past 30 days. Shares of the company have gained 13.3% in the past three months.
Image: Bigstock
Here's Why Investor Should Buy KB Home (KBH) Stock Right Now
The U.S. housing market is indeed traveling through a rough patch characterized by rising mortgage rates, supply-chain disruptions, material cost inflation and higher wages. Nonetheless, homebuilders like KB Home (KBH - Free Report) are navigating these headwinds well with prudent growth plans, a solid existing geographic footprint and a built-to-order approach.
Shares of this Los Angeles, CA-based homebuilder have gained 19.5% over the past three months compared with the Zacks Building Products - Home Builders industry’s 14.9% rise.
This Zacks Rank #2 (Buy) stock has a long-term earnings growth rate of 7.1%, which highlights its inherent strength. We believe that KB Home offers a sound investment opportunity, as evident from its VGM Score of A.
The Zacks Consensus Estimate has witnessed an uptrend over the past 30 days as analysts raised their estimates. Over the said time frame, the Zacks Consensus Estimate of $4.97 and $5.21 for 2023 and 2024 has increased 20.6% and 19.2%, respectively.
Image Source: Zacks Investment Research
What Makes the Stock an Attractive Pick?
Slightly Improving Builders’ Sentiment: Builders are now cautiously optimistic for 2023 as a lack of existing inventory is shifting demand to the new home market. Although builders continue to grapple with high construction costs and material supply chain disruptions, they continue to witness strong pent-up demand as buyers wait for interest rates to drop and turn more to the new home market due to a shortage of existing inventory.
Although builder confidence in the market for newly-built single-family homes in March remains below 50, it rose two points to 44, according to the National Association of Home Builders /Wells Fargo Housing Market Index released recently. This is the third straight monthly increase in builder sentiment levels.
KBH believes that it remains well positioned to achieve its full-year revenues expectation supported by ending backlog value of $3.3 billion, higher community count, and the expectation of current housing market conditions continuing for the rest of the year. The company also expects improvement in supply chain performance and build times.
Built-to-Order Approach Gives Competitive Advantage: The company’s Built-to-Order process provides buyers with a wide range of choices in the major aspects of their future home and a personalized customer experience through in-house community teams.
The company initiates construction only after a purchase agreement has been executed. This reduces inventory risk, enhances efficiencies in construction and provides greater visibility as well as predictability on future deliveries. The company’s built-to-order homes help it generate higher revenues from premiums (lots, plans, and elevations) as well as a design studio and structural options.
Solid Geographic Footprint: KBH’s existing geographic footprint offers the potential for substantially larger scale in markets. Although KB Home is perceived to be a California builder, its business is becoming more diversified. The company’s Southeast region has grown into a larger business, approaching 20% of revenues in the fiscal first quarter compared to only 11% five years ago. This region has significantly improved its profitability and returns in the last five years. Again, during the quarter, KBH achieved its first deliveries in Charlotte, which is a dynamic and growing top 10 housing market.
KB Home has a strong land pipeline and thus expects the fiscal second-quarter end community count to be up 15-20%. For fiscal 2023, the metric is expected to be up in the low-double-digit percentage range.
Other Key Picks
Some other top-ranked stocks in the same space are:
Taylor Morrison Home Corporation’s (TMHC - Free Report) ongoing operational enhancements, acquisition synergies and robust pricing power have more than offset the inflationary pressure and delays in some closings.
TMHC currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for its 2023 earnings has been upwardly revised to $6.46 per share from $5.47 over the past 30 days. Shares of the company have gained 17.6% in the past three months.
Based in Horsham, PA, Toll Brothers, Inc. (TOL - Free Report) is a leading builder of luxury homes. The company has been benefiting from its strategy of broadening its product lines, price points and geographies. Also, it has been gaining from the lack of competition in the luxury new home market, its build-to-order approach and a solid backlog.
TOL currently carries a Zacks Rank #2. Earnings estimates for fiscal 2023 have increased to $8.66 per share from $7.87 over the past 30 days. Shares of the company have gained 13.3% in the past three months.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Beazer Homes USA (BZH - Free Report) designs, builds and sells single-family homes. Shares of the company have gained 18.5% in the past three months.
BZH currently carries a Zacks Rank #2. Earnings estimates for fiscal 2023 have increased to $3.56 per share from $3.46 over the past 60 days.