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KB Home Hits a New 52-Week High on Solid Housing Momentum

Zacks Equity Research

Shares of KB Home KBH scaled a new 52-week high of $21.58 on May 16, finally ending the day’s trading a tad lower at $21.52. The homebuilding company’s stock has increased 36.1% since the beginning of the year, faring a lot better than the Zacks categorized Building-Residential/Commercial industry’s gain of 22.1%.

Notably, the company’s shares have been increasing since it reported better-than-expected first-quarter fiscal 2017 results on May 23, with both the top and bottom line surpassing the Zacks Consensus Estimate. Since then, the stock has gained almost 11.4% compared with a mere 1.9% gain of the Construction sector and 4.2% growth of the industry over the period.

What’s Driving the Stock?

Homebuilders have mostly outperformed the S&P 500 so far this year buoyed by the current reports pointing to the strengthening U.S. housing market. The industry grew 22.1% over the period, while the broader S&P 500 index grew 7.5% in the same time frame, depicting the positive housing momentum.

Per a newly released report from the National Association of Realtors (NAR), total existing home sales, which comprises both single-family and condominiums, rose 1.4% from the preceding quarter to a seasonally adjusted rate of 5.62 million in the first quarter of 2017, marking the highest in a decade. This was also 5% higher than the corresponding period last year.

Prominent homebuilders like NVR. Inc. NVR, KB Home and Toll Brothers, Inc. TOL scaled to new 52-week highs on Tuesday following the latest upbeat readings for the housing industry.

The 2017 outlook for the U.S. homebuilding industry is quite compelling given the affordable interest rates, along with impressive housing starts and new-home sales data. Resilient job growth, healthy demand-supply balance along with seemingly high homebuilders’ confidence add to the momentum.

Coming to KB Home, the homemaker also reported solid first-quarter results wherein earnings and revenues grew 7.1% and 20.7% year over year, respectively, buoyed by strong demand. The company started 2017 with double-digit rise in deliveries and housing revenues. Strong orders in value (up 32%) and backlog (up 25%) bode well for KB Home in 2017.

The company remains focused on its core KB2020 business strategy which aims at boosting its existing geographic footprint, improving profitability per unit, generating higher operating margin and driving earnings, while generating positive cash flow to redeploy for growth and debt reduction.

Its earnings estimate for the current year has improved by 3.9% and 7.1% for 2018 in the last 60 days. The company has a solid expected earnings growth of 43.2% for the current year and 21.9% for the next.

All these positive earnings estimate revisions add to the optimism in the stock and also testifies the solid confidence that analysts have in the company. This also substantiates the Zacks Rank #1 (Strong Buy) for the stock. You can see the complete list of today’s Zacks #1 Rank stocks here.

Key Pick

Investors may also consider William Lyon Homes WLH, sporting a Zacks Rank #1.

Full-year 2017 earnings for William Lyon Homes are expected to grow 36.8%.

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