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KB Home (KBH) Expands Presence in Pacific Northwest Region

Zacks Equity Research

After opening the first community — Falling Water in Bonney Lake — in the Seattle area, KB Home KBH has plans to open its second and third new-home communities, thereby expanding presence in the Pacific Northwest region.

These new-home communities, namely Cascade Vista in Spanaway and Ridgecrest in Kent, will give buyers the ability to personalize their homes from homesites and floor plans to design features. Notably, KB Home plans to open the Ridgecrest community in early 2020.

The homes are going to be built in accordance with ENERGY STAR® certification standards, which will result in lower monthly utility costs than other resale homes. Markedly, the company focuses on giving customers greater choice and control in order to gain more customer value.

Strategies to Boost Sales

KB Home continuously focuses on the Built-to-Order approach that provides buyers with a wide range of choices and personalized customer experience through in-house community teams. This highly consumer-centric approach gives KB Home a competitive advantage over its peers.

This apart, KB Home’s returns-focused growth plan, balanced approach of allocating cash flow, improvement in gross margin and community count growth realization are expected to drive growth.

This is evident from the company’s recently released third-quarter fiscal 2019 results, wherein average community count was up 18% year over year. Notably, net orders per community averaged 4.3 per month in the quarter, up from 4.1 recorded in the prior year.

Although the company’s top and bottom lines declined on a year-over-year basis, it remains upbeat about improvement in fiscal fourth-quarter results. The company believes that solid backlog level ($2.3 billion), declining mortgage rates, steady economic growth and favorable demographics will continue providing a healthy backdrop for the housing industry. This will help it to grow further in fiscal 2020.

Shares of KB Home have gained more than 70% year to date, crushing its industry’s 43.5% growth and S&P 500’s 16.8%. Ongoing execution of the company’s returns-focused growth plan, balanced approach of allocating cash flow, improvement in gross margin and community count growth realization are expected to maintain its momentum going forward.

Zacks Rank & Other Key Picks

Currently, KB Home carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Other top-ranked stocks in the construction sector include M.D.C. Holdings, Inc. MDC, Meritage Homes Corporation MTH and Taylor Morrison Home Corporation TMHC, each sporting a Zacks Rank #1.

M.D.C. Holdings has three-five year expected EPS growth rate of 9.9%.

Meritage Homes surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with the average beat being 13.5%.

Taylor Morrison surpassed the consensus estimate in all of the trailing four quarters, with the average being 41.8%.

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