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KB Home on Expansion Spree, Opens New Community in Kent

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In a bid to expand its presence across Seattle, KB Home (KBH - Free Report) recently announced the opening of Ridgecrest — a new single-family home community — located at the city of Kent.

The affordably-priced communities will have two-story single-family homes with up to five bedrooms and three baths with a floor area of 1550-2750 square feet. Moreover, these communities will be built per the latest ENERGY STAR guidelines, which will enable homebuyers save a reasonable amount in utility costs. The new, personalized KB home comes with a price tag of $490,000.

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. The move is in sync with KB Home’s ongoing brand-expansion strategy.

Community Expansion: Major Growth Driver

KB Home is aggressively investing in land acquisition to boost community count and drive revenues. Moreover, the company’s focus on KB2020 business strategy also bodes well. The strategy aims to boost scale in existing geographic footprint, improve profitability per unit, increase operating margin, drive earnings and generate positive cash flow to redeploy growth and reduce debt.

Under the Homebuilding segment, land generated $11.1 million revenues during the fourth quarter fiscal 2019 (up from $4.7 million a year ago), while housing revenues totaled $1,542.2 million (increasing 15.2% from $1,339.3 million in the prior-year quarter). Also, the average community count increased 9% year over year to 253.

Notably, KB Home expects land investments to drive additional community openings throughout 2020 as well. The company intends to generate year-over-year growth in average community count in the mid-single digit range in fiscal 2020.

Price Performance

Owing to major contribution from KB Home’s businesses, shares of the company have surged 74.4% in the past year compared with the industry’s 36.3% rally. The company’s solid performance is backed by an impressive earnings surprise history, having surpassed the Zacks Consensus Estimate in each of the trailing 16 quarters.

Moreover, solid backlog level of $1.8 billion, steady economic growth and favorable demographics are expected to provide a healthy backdrop for the housing industry. This will enable the company to witness further growth in fiscal 2020 as well.

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 (Strong Buy) Rank stocks here.

A few other top-ranked stocks in the Zacks Construction sector include Arcosa, Inc (ACA - Free Report) , M/I Homes, Inc (MHO - Free Report) and M.D.C. Holdings, Inc (MDC - Free Report) . Arcosa sports a Zacks Rank #1, while M/I Homes and M.D.C. Holdings carry a Zacks Rank #2.

Arcosa has three-five year expected earnings per share growth rate of 12.6%.

M/I Homes surpassed estimates in all of the trailing four quarters, the average being 16.2%.

M.D.C. Holdings 2020 earnings are expected to rise 18.6%.

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