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Bull of the Day: KB Home (KBH)

Tracey Ryniec

KB Home (KBH) is benefiting from a strong job market and the lowest mortgage rates of the cycle. This Zacks Rank #1 (Strong Buy) is expected to see double digit earnings growth this year and next.

KB Home is one of the largest homebuilders in the United States with developments in 38 markets in 8 states. It specializes in first time buyers, move-up buyers and active adults. It is headquartered in Los Angeles.

Another Beat in the Fiscal Third Quarter

On Sep 25, KB Home reported its fiscal third quarter results and beat the Zacks Consensus by 8 cents, or 12.3%. It reported earnings of $0.73 versus the consensus of $0.65.

KB Home has put together an impressive string of earnings beats that goes back 15 quarters, all the way to the beginning of 2016.

Revenue was $1.23 billion as home deliveries rose slightly to 3,022.

Average selling price fell 7% to $381,400, mainly due to a community mix shift within the West Coast region.

Net orders jumped 24% with double-digit increases in each of the company's four regions.

The cancellation rate, which is a key statistic for many home builders, improved to 20% from 26%. It's backlog also rose 14% to 6,230 homes with a backlog value of $2.3 billion. That's up 13% from $2.04 billion. The backlog saw increases in all regions.

Tripled the Dividend

The company is bullish as its seeing increased cash flow and expects the new home housing market to stay strong heading into fiscal 2020.

On July 15, it announced it was tripling the dividend to $0.09 from $0.025. It's now yielding 1.1%.

KB Home has consistently paid a dividend for the last 30 years.

Estimates Raised

The analysts are as bullish as the company as 7 analysts raised fiscal 2019 and fiscal 2020 earnings estimates since the report.

The fiscal 2019 Zacks Consensus Estimate rose to $2.82 from $2.68. That's earnings growth of 64.9% as it made just $1.71 last year.

7 estimates were also revised higher for fiscal 2020 during this same time which has pushed the Zacks Consensus up to $3.36 from $3.09. That's another 19.3% earnings growth.

Golden Time for the Home Builders

There have been several "golden" periods for the home builders since the Great Recession. Remember when the home builders were the best performing industry in the S&P 500 2012?

But with mortgage rates coming down under 4% again and the consumer still bullish, this appears to be another golden time for the companies.

Investors have been piling back into the stocks. KB Home is up 77% year-to-date and is hitting new 52-week highs.

It's close to breaking out to new 5-year highs.

But the shares are still relatively inexpensive as those estimates inch higher. It's trading with a forward P/E of 12.

It has a price-to-sales ratio of just 0.7 and a price-to-book ratio of 1.3.

KB Home isn't the only Zacks Rank #1 (Strong Buy). Four other home builders also share that distinction including Beazer Homes USA (BZH), M.D.C. Holdings (MDC), Meritage Corp. (MTH) and Taylor Morrison Home Corp. (TMHC).

If you're an investor looking for a company that has earnings momentum to the upside, KB Home is a stock that should be on your short list.

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