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KB Home Reaches 52-Week High

Zacks Equity Research

Shares of KB Home (KBH) reached a 52-week high of $20.31 on Mar 8, 2013 ahead of first-quarter fiscal 2013 results later this month. The closing price of the homebuilder on Mar 8 was $20.18, representing a huge 1-year return of about 72.1% and year-to-date return of about 24.0%. Average volume of shares traded over the last three months stands at approximately 4800K.

Housing Boom Driving the Stock Higher

After witnessing severe and widespread downturn that began in mid-2006, the housing market is now recovering steadily. With the housing fundamental improving, KB Home is witnessing significant growth in both volumes and selling prices. The company saw increased homebuilding revenues and home deliveries in fiscal 2012.

Moreover, the company is seeing increased demand for larger homes with more design options, which is driving average selling prices higher. Further, KB Home has started rolling out communities in highly favorable submarkets, primarily in the Central and West Coast regions, which allows it to sell larger, higher priced homes, driving the average selling price higher. KB Home is also targeting the higher income, first-time and move-up buyers; all of whom are more inclined toward buying a new home rather than buying foreclosures. Further, it is improving and refining its products, activating communities (which were held for future development) in stabilizing markets, increasing revenues per community with intense focus on sales performance, and strengthening management teams with additional resources to improve its operating performance while carefully managing costs. Management believes that these growth initiatives will help it achieve profitability and also drive significant growth in 2013.

KB Home expects to increase its community count in 2013 as the current aggressive land acquisition and development activities are converted into open communities. KB Home expects to see meaningful revenue growth in the year with increased community count, rising ASPs, higher revenue per community, higher backlog and improving housing momentum.

Interestingly, in late January, KB Home announced impressive preliminary quarter-to-date (:QTD) net order growth for new homes for the upcoming first quarter 2013. The number of new homes ordered was 750 as of Jan 18, 2013, up 54% from 488 in the year-ago period.

Other Stocks to Consider

KB Home carries a Zacks Rank #3 (Hold). Some other housing stocks worth considering include NVR Inc. (NVR) – Zacks Rank #1 (Strong Buy), D.R. Horton Inc. (DHI) -Zacks Rank #2 (Buy), and Consorcio ARA, S. A. B. de C. V. (CNRFF) - Zacks Rank #2 (Buy).

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