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Will KB Home (KBH) Q2 Earnings Fall Short of Estimates?

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KB Home (KBH - Free Report) is set to report fiscal second quarter 2016 results on Jun 21 after the market closes.

Last quarter, the homebuilding company delivered a positive earnings surprise of 27.27%. Though the company posted three positive earnings surprises in the past four quarters, it has an average negative surprise of 6.81%.  

KB HOME Price and EPS Surprise

KB HOME Price and EPS Surprise | KB HOME Quote

Let’s see how things are shaping up for this announcement.

Factors to Consider

KB Home expects housing revenues to range between $710 million and $770 million during the quarter, driven by an increase in the number of homes delivered and a 6% increase in Average Selling Price (ASP) to $360,000. KB Home experienced solid traffic levels and encouraging demand trends in the early spring selling season. Going forward, management expects this trend to continue in the upcoming quarter.

However, gross margin is expected to be sequentially flat. Average community count is also expected to remain unchanged year over year. KB Home’s second quarter 2016 results are expected to be impacted by labor constraints. Also most of its closings are subjected to the new trade regulations, which may hurt number of closings.  

Earnings Whispers

Our proven model does not conclusively show that KB Home is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: KB Home’s  Earnings ESP is -11.77% as the Most Accurate Estimate stands at 15 cents while the Zacks Consensus Estimate is pegged higher at 17 cents.

Zacks Rank #4 (Sell):  We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some other companies in the construction sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases:

Meritage Homes Corporation (MTH - Free Report) , with an Earnings ESP of +1.27% and a Zacks Rank #3.

Owens Corning (OC - Free Report) , with an Earnings ESP of +3.53% and a Zacks Rank #3.

AECOM (ACM - Free Report) , with an Earnings ESP of +1.41% and a Zacks Rank #3.

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Owens Corning Inc (OC) - free report >>

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AECOM (ACM) - free report >>

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