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KB Home (KBH) Unveils Single-Family Community in Rocklin

Zacks Equity Research

In order to boost single-family community count, KB Home KBH recently announced the opening of Oak Vista in Rocklin, CA. Located near Interstate 80 and Highway 65, the property lies in close proximity to the Sacramento region, and will be easily accessible to notable employers, hospitals and colleges.

At the property, the company plans to build 59 one and two story homes in five floor plans. Notably, the community will be built per the latest ENERGY STAR guidelines, including the WaterSense label. Given that these new homes are more energy and water efficient, homebuyers are expected to save $1,764-$2,472 per annum in utility costs.

The move is in line with its continuous brand expansion. Notably, on May 31, 2019, the company unveiled its newest collection of single-family community, Wildflower at Harvest at Limoneira, in Santa Paula.

Community Expansion to Drive Top Line

KB Home is a highly consumer-centric company that focuses on Built-to-Order approach, which allows buyers with a wide range of choices to personalize their home. In this regard, the company has its own design studio named KB Home Design Studio, a retail-like showroom wherein homebuyers have access to a variety of choices.

Backed by this consumer-centric approach, KB Home has gained a competitive advantage over peers and lowered the cost of production. The latest move underscores its aim of boosting single-family home count, which is likely to drive net orders and in turn revenues.

In the last reported quarter, the company’s homebuilding revenues declined due to lower demand on volatility in mortgage rates and affordability concerns pertaining to second-half 2018. Nonetheless, the metric is expected to gain from its consumer-centric approach and improving industry perspective, moving ahead.

The company believes that stable interest rates, stronger demand due to increased consumer confidence and solid job market, community growth, along with smaller floor plans for homebuyers (addressing affordability concerns) will likely drive growth through 2019. Notably, its average community count at the end of the first quarter was 244, up 10% on a year-over-year basis.

Our Take

We believe that the company’s commitment toward expansion and differentiated customer offerings gives it a competitive edge over peers. Coming to price performance, shares of KB Home have outperformed its industry so far this year. The stock has gained 40.9% compared with the industry’s rally of 23.8% in the said period. Notably, the company’s earnings for the current year are pegged at $2.63 per share, indicating 53.8% year-over-year growth. Markedly, the company has an impressive earnings surprise history, having surpassed the Zacks Consensus Estimate in each of the trailing 13 quarters.

Zacks Rank & Key Picks

Currently, KB Home carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are NVR, Inc. NVR, PulteGroup, Inc. PHM and Taylor Morrison Home Corporation TMHC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NVR, PulteGroup and Taylor Morrison surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 17.6%, 13.5%, and 38.7%, respectively.

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