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Buy Surging KB Home Stock Ahead of Q2 2020 Earnings?

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·4 min read
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KB Home KBH shares have soared over the last three months, up 200% from its March 18 lows to trounce its industry’s 100% climb. Now the question is can the home builder’s run continue, or will its second quarter fiscal 2020 financial results, due out on Wednesday, June 24, put a halt to KBH’s climb.

KB Home’s Simple Story

KB Home operates in 42 markets in eight different states, mostly in highly desirable areas such as Colorado, Arizona, California, and Washington. The homebuilder allows buyers to customize their homes. They can choose their lots, floor plans, as well as interiors, which includes everything from countertops to cabinets. The Los Angeles-based firm has also rolled out more energy-efficient offerings recently.

KBH’s revenue surged 33% to $1.08 billion last quarter for the period ended on February 29. This marked its highest revenues for any first quarter since 2007. Meanwhile, homes delivered popped 28% to 2,752 and net orders jumped 31%.

Despite the strong quarter, the company warned Wall Street about a though coronavirus-based landscape ahead. “While we continue to close homes and generate revenues, we are also taking steps to curtail land acquisition and development until circumstances become more stabilized,” CEO Jeffrey Mezger said in prepared remarks back in late March.

 

 

 

 

 

 

 

 

 

 

Other Fundamentals

The nearby chart shows us that KBH shares are up 100% over the last five years, against our broader Zacks construction market’s 20% jump. The stock has also doubled up its peer group—which includes Toll Brothers TOL, Meritage Homes MTH, TRI Pointe TPH, PulteGroup, Inc. PHM—over this stretch and in the last 12 months, up 31% vs. 6%.

Investors should also note that KB Home stocks is still down 3% in 2020 and closed regular trading Thursday at $32.97 per share, roughly 19% off its 52-week highs from February. This could give it room to run if it’s able to impress Wall Street.

Even though it has easily outpaced its industry, KBH trades right in line with its peer group at 10.6X trailing 12-month earnings, which marks a discount against its own one-year median of 11.3X. And KB Home’s 1.09% dividend yield tops the 10-year U.S. Treasury’s 0.70%.

Taking a broader housing market view, new-home sales popped 0.6% in April from a month earlier, according to the Census Bureau. This figure is still down 6% from the year-ago period but came in well above economist projections. On top of that, May's 18% jump in retail sales is a positive sign as the economy slowly reopens from its coronavirus lockdowns.

It is also worth noting that people who live in crowded cities might be in even more of a rush to move to a home, as the pandemic lingers. And 30-year fixed mortgage rates rest at around 3.13%, down from 3.84% a year ago. This could further entice buyers to lock in these historically low rates.

Bottom Line

Looking ahead, our Zacks estimates call for KB Home’s adjusted second quarter earnings to climb nearly 12% to $0.57 per share, on the back of 5% higher revenue. Overall, the company’s adjusted fiscal 2020 EPS figure is projected to dip over 8% on 0.44% stronger sales.

KB Home has seen its longer-term earnings revisions trend in the right direction recently to help it hold a Zacks Rank #3 (Hold). Nonetheless, it might be best to wait and see how its actual Q2 results shake out and what its guidance looks like amid all the uncertainty.

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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
 
Toll Brothers Inc. (TOL) : Free Stock Analysis Report
 
KB Home (KBH) : Free Stock Analysis Report
 
TRI Pointe Group, Inc. (TPH) : Free Stock Analysis Report
 
Meritage Homes Corporation (MTH) : Free Stock Analysis Report
 
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