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Is KB Home (KBH) a More Profitable Housing Pick Than MDC?
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Despite challenges related to high interest rates, elevated mortgage rates and affordability issues faced by the Zacks Building Products - Home Builders industry, major industry players surged recently. Homebuilding companies have consistently revealed impressive quarterly results, expressing optimism about the growth of new orders and deliveries in the upcoming quarters.
The Federal Reserve's decision to maintain interest rates at a 22-year high of 5.25-5.5% brings optimism to the housing market. This stability provides relief for companies like KB Home (KBH - Free Report) , M.D.C. Holdings, Inc. , Dream Finders Homes, Inc. (DFH - Free Report) , PulteGroup, Inc. (PHM - Free Report) and others. Home prices and borrowing rates are now expected to bridge the gap between demand and supply.
Based on various parameters, let’s check whether KBH or MDC is a more profitable stock. It is to be noted that both companies are almost neck and neck in terms of market cap and each carries a Zacks Rank #3 (Hold).
Determinants of the Stocks
KB Home — with a market cap of more than $4.81 billion — is a well-known homebuilder in the United States and one of the largest in the state. The company’s growth is driven by the Returns-Focused Growth Plan, which includes the execution of its core business strategy, improving asset efficiency and monetizing significant deferred tax assets.
Looking forward to the first quarter and the entirety of 2024, KBH foresees enhanced conditions in the housing market and ongoing positive trends in the supply chain. Leveraging the advantages of its Built to Order model, the company is confident in its ability to effectively navigate potential fluctuations in housing market conditions.
MDC — with a market cap of more than $4.03 billion — engages in building and selling single-family detached homes for first-time and move-up buyers under the name “Richmond American Homes.” The company benefits from the Build-to-Order process, which gives it a competitive edge over peers. This approach helps reduce inventory risk, enhances efficiencies in construction and provides predictability for future deliveries.
To stay competitive in the current market condition, MDC is offering great opportunities for build-to-order buyers, such as long-term interest rate lock programs and other special incentives. Given the ongoing market scenario, the company aims to increase its land acquisition efforts and improve its market share position.
Zacks Estimates & Stock Performance
The Zacks Consensus Estimate for KBH’s fiscal 2024 earnings indicates a 4.1% year-over-year rise. MDC’s bottom line for 2024 is likely to grow by 4%. KBH’s earnings estimates have moved up in the past seven days and MDC increased in the past month. Although MDC’s earnings expectation looks comparatively low, it has a better revenue projection of 7.1% than KBH’s 4%. Nonetheless, both stocks flaunt a VGM Score of A.
Image Source: Zacks Investment Research
Shares of KB Home and MDC have gained 72.7% and 51.7%, respectively, in a year compared with the industry’s 66.1% growth and S&P 500 index’s 20.4% increase. Although the stocks have performed impressively, KBH fared better than MDC and the industry.
Meanwhile, considering earnings history, KBH and MDC both surpassed estimates in each of the last four quarters, delivering average earnings surprises of 28.9% and 21.7%, respectively.
A Look at Stocks’ Profitability & Valuation
Return on Equity in the trailing 12 months for KB Home is 15.6% compared with MDC and the industry’s 11.3% and 19%, respectively. This implies that KBH provides more impressive returns to investors than MDC.
The industry is clearly undervalued than the S&P 500, with respect to the forward 12-month price-to-earnings (P/E) ratio. This implies that the industry has upside potential for the near future. The industry has an average forward 12-month P/E ratio of 10.5, which is below the S&P 500’s average of 20. Hence, it might be a good idea to focus on stocks belonging to this industry.
Coming to the two stocks under consideration, KBH and MDC — with a 12-month forward P/E ratio of 8.2 and 10, respectively — are undervalued than the S&P 500 and the industry.
Comparing the two stocks, MDC is less pricey than KBH.
Our Take
KBH certainly has the edge over MDC, as it has better price performance and prospects and provides impressive returns to investors. The companies remain optimistic about overall homebuilding trends, given promising fundamentals and improving industry parameters.
A Brief Overview of the Other Two Stocks
Dream Finders Homes currently sports a Zacks Rank #1 (Strong Buy). This Jacksonville, FL-based homebuilder has been benefiting from the strategy to focus on managing construction times and increasing inventory turnover. You can see the complete list of today’s Zacks #1 Rank stocks here.
Dream Finders Homes’ earnings per share (EPS) estimates for 2024 have increased to $2.51 from $2.38 over the past 30 days. Shares of DHF have gained 58.7% over the past three months.
PulteGroup currently sports a Zacks Rank #1. The company is benefiting from its operating model, which strategically aligns the production of build-to-order and quick-move-in homes with applicable demand across consumer groups.
PulteGroup’s EPS estimates for 2024 have increased to $11.37 from $11.33 over the past 30 days. Shares of PHM have gained 39.8% over the past three months.
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Is KB Home (KBH) a More Profitable Housing Pick Than MDC?
Despite challenges related to high interest rates, elevated mortgage rates and affordability issues faced by the Zacks Building Products - Home Builders industry, major industry players surged recently. Homebuilding companies have consistently revealed impressive quarterly results, expressing optimism about the growth of new orders and deliveries in the upcoming quarters.
The Federal Reserve's decision to maintain interest rates at a 22-year high of 5.25-5.5% brings optimism to the housing market. This stability provides relief for companies like KB Home (KBH - Free Report) , M.D.C. Holdings, Inc. , Dream Finders Homes, Inc. (DFH - Free Report) , PulteGroup, Inc. (PHM - Free Report) and others. Home prices and borrowing rates are now expected to bridge the gap between demand and supply.
Based on various parameters, let’s check whether KBH or MDC is a more profitable stock. It is to be noted that both companies are almost neck and neck in terms of market cap and each carries a Zacks Rank #3 (Hold).
Determinants of the Stocks
KB Home — with a market cap of more than $4.81 billion — is a well-known homebuilder in the United States and one of the largest in the state. The company’s growth is driven by the Returns-Focused Growth Plan, which includes the execution of its core business strategy, improving asset efficiency and monetizing significant deferred tax assets.
Looking forward to the first quarter and the entirety of 2024, KBH foresees enhanced conditions in the housing market and ongoing positive trends in the supply chain. Leveraging the advantages of its Built to Order model, the company is confident in its ability to effectively navigate potential fluctuations in housing market conditions.
MDC — with a market cap of more than $4.03 billion — engages in building and selling single-family detached homes for first-time and move-up buyers under the name “Richmond American Homes.” The company benefits from the Build-to-Order process, which gives it a competitive edge over peers. This approach helps reduce inventory risk, enhances efficiencies in construction and provides predictability for future deliveries.
To stay competitive in the current market condition, MDC is offering great opportunities for build-to-order buyers, such as long-term interest rate lock programs and other special incentives. Given the ongoing market scenario, the company aims to increase its land acquisition efforts and improve its market share position.
Zacks Estimates & Stock Performance
The Zacks Consensus Estimate for KBH’s fiscal 2024 earnings indicates a 4.1% year-over-year rise. MDC’s bottom line for 2024 is likely to grow by 4%. KBH’s earnings estimates have moved up in the past seven days and MDC increased in the past month. Although MDC’s earnings expectation looks comparatively low, it has a better revenue projection of 7.1% than KBH’s 4%. Nonetheless, both stocks flaunt a VGM Score of A.
Image Source: Zacks Investment Research
Shares of KB Home and MDC have gained 72.7% and 51.7%, respectively, in a year compared with the industry’s 66.1% growth and S&P 500 index’s 20.4% increase. Although the stocks have performed impressively, KBH fared better than MDC and the industry.
Meanwhile, considering earnings history, KBH and MDC both surpassed estimates in each of the last four quarters, delivering average earnings surprises of 28.9% and 21.7%, respectively.
A Look at Stocks’ Profitability & Valuation
Return on Equity in the trailing 12 months for KB Home is 15.6% compared with MDC and the industry’s 11.3% and 19%, respectively. This implies that KBH provides more impressive returns to investors than MDC.
The industry is clearly undervalued than the S&P 500, with respect to the forward 12-month price-to-earnings (P/E) ratio. This implies that the industry has upside potential for the near future. The industry has an average forward 12-month P/E ratio of 10.5, which is below the S&P 500’s average of 20. Hence, it might be a good idea to focus on stocks belonging to this industry.
Coming to the two stocks under consideration, KBH and MDC — with a 12-month forward P/E ratio of 8.2 and 10, respectively — are undervalued than the S&P 500 and the industry.
Comparing the two stocks, MDC is less pricey than KBH.
Our Take
KBH certainly has the edge over MDC, as it has better price performance and prospects and provides impressive returns to investors. The companies remain optimistic about overall homebuilding trends, given promising fundamentals and improving industry parameters.
A Brief Overview of the Other Two Stocks
Dream Finders Homes currently sports a Zacks Rank #1 (Strong Buy). This Jacksonville, FL-based homebuilder has been benefiting from the strategy to focus on managing construction times and increasing inventory turnover. You can see the complete list of today’s Zacks #1 Rank stocks here.
Dream Finders Homes’ earnings per share (EPS) estimates for 2024 have increased to $2.51 from $2.38 over the past 30 days. Shares of DHF have gained 58.7% over the past three months.
PulteGroup currently sports a Zacks Rank #1. The company is benefiting from its operating model, which strategically aligns the production of build-to-order and quick-move-in homes with applicable demand across consumer groups.
PulteGroup’s EPS estimates for 2024 have increased to $11.37 from $11.33 over the past 30 days. Shares of PHM have gained 39.8% over the past three months.