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Investors Positive on KB Home, Suggesting Housing Strength

Pierce Crosby

Investors on Stocktwits gave a ‘buy’ to KB Home (KBH) after the company’s second quarter earnings beat expectations, underpinning not only strong construction spend, but greater strength in US economy.

The homebuilder posted second quarter diluted earnings of 27 cents a share on net income of $26.6 million, beating analysts’ expectations of 21 cents a share. The quarterly results were much better than the second quarter of the same period last year, when the company reported a loss of $3 million, or 4 cents a share on revenue of $524.4 million.

Not only do investors think the results are positive for KB Home, companies related to the sector, such as machinery-maker Lennox International, are indicated winners if the housing market remains positive.

Sales of newly built homes have surged during the busiest selling season of the year, with improving consumer confidence and higher employment as significant data to cite. Purchases of new homes jumped 18.6% in May, the biggest one-month gain since January 1992. This has allowed builders such as KB Home to raise prices in a market where availability of properties is tight. For the quarter, average selling price of KB Home increased 10 percent to $319,700.

The Los Angeles-based company said revenue in the quarter rose 8 percent from a year ago to $565 million. The company’s contract backlog, an indicator of future sales, rose 9 percent to 3,398 homes. If such results are reflective of the greater market, investors will be looking forward to competitor results such as Lennar Corporation, D.R. Horton, and NVR, Inc.