The Zacks Analyst Blog Highlights Toll Brothers, Lennar, Beazer Homes, MI Homes and KB Home
For Immediate Release
Chicago, IL – July 20, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Toll Brothers, Inc. TOL, Lennar Corp. LEN, Beazer Homes USA, Inc. BZH, MI Homes, Inc. MHO and KB Home KBH.
Here are highlights from Wednesday’s Analyst Blog:
Builder Sentiment Hits 13-Month High: 5 Top Housing Picks
Confidence among U.S. homebuilders hit a 13-month high in July despite the accelerating mortgage rates, higher construction costs and a dearth of lot supply that continue to challenge the market. Defying all these odds, homebuilder sentiment inched one point higher in July from June, given a solid underlying demand trend. Low existing homes for sale and refining supply chain efficiency have been raising optimism.
So far this year, the Zacks Building Products - Home Builders industry has widely outperformed the broader market (S&P 500), as you can see below. The industry falls within the top 8% (19 out of more than 250 industries) of the Zacks Industry Rank, which hints at further growth.
Also, since May 2023, the industry’s earnings estimates for 2023 and 2024 have increased 6.7% and 4.1% to $8.39 and $8.69 per share, respectively. It appears that analysts are gradually gaining confidence in this group’s bottom-line growth potential.
Companies like Toll Brothers, Inc., Lennar Corp., Beazer Homes USA, Inc., MI Homes, Inc. and KB Home have been gaining from their fundamental strength and the above-mentioned tailwinds.
Key Highlights
According to the National Association of Home Builders report released on Jul 18, the monthly Housing Market Index (HMI) reading leaped one point sequentially and year over year to 56 in July. This marked the seven consecutive months of a sequential rise for the index and the highest level since June 2022.
Meanwhile, two of the three HMI components grew sequentially this month. Current sales conditions increased one point to 62 in July and buyer traffic rose three points to 40. However, sales prediction for the next six months moved south by two points to 60.
Another positive aspect of the July data is that prospective buyer traffic reached the highest level since June 2022. This depicts robust demand conditions for new homes despite a series of interest-rate hikes pushing mortgage rates to hover around 7%.
Additionally, builders are using fewer incentives. Only 22% of builders reduced prices in July. This is down from 25% in June and 27% in May.
Rising Mortgage Rates: A Major Impediment
Although builders are cautiously optimistic about the U.S. housing market prospect, they acknowledge that buyers remain perturbed by the elevated interest rates. Although, builder confidence witnessed a single-point improvement in July, the gain decelerated from the five-point increase in the last two months. Also, the reading for future sales expectations dropped, raising a concern.
The 30-year fixed mortgage rate averaged 6.96% for the week ending Jul 13, reflecting an increase from 6.81% last week and 5.51% a year ago, according to Freddie Mac.
Given the scenario, affordability pressure might put a strain on some potential consumers, particularly first-time buyers, going forward, considering their income level.
Again, the lack of affordable lots and skilled labor is making things more miserable.
Nonetheless, inflation slowed to a two-year low in June at 3%. This was the smallest increase since March 2021 and down from a four-decade high of 9.1% in June 2022. This depicts that the economy is responding to the series of interest rate hikes which may restrict the Fed for another hike.
Key Homebuilding Stocks
Adding some homebuilding stocks to your portfolio seems to be a judicious move at this point, given solid demand. With the help of the Zacks Stock Screener, we have zeroed in on five stocks with a Zacks Rank #1 (Strong Buy) and favorable metrics. A top Zacks Rank indicates that these stocks have been witnessing positive estimate revisions, which generally translate into rapid price appreciation. You can see the complete list of today’s Zacks #1 Rank stocks here.
Toll Brothers: Based in Horsham, PA, Toll Brothers is a leading builder of luxury homes. The company has been benefiting from its strategy of broadening its product lines, price points and geographies. Also, it has been gaining from the lack of competition in the luxury new home market, its build-to-order approach and solid backlog level.
TOL — a Zacks Rank #1 stock — has gained 65.5% this year. Earnings estimates for fiscal 2023 have increased to $10.61 per share from $8.66 per share over the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 24.4%.
Lennar: Based in Miami, FL, Lennar is engaged in homebuilding and financial services in the United States. The company is benefiting from digital marketing initiatives and a dynamic pricing model. Also, land-lighter strategy and effective cost-control measures are added positives.
LEN — a Zacks Rank #1 stock — has gained 44.7% this year. Earnings estimates for fiscal 2023 have increased to $12.65 per share from $9.76 per share over the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 18.4%.
Beazer Homes USA: This Atlanta, GA-based homebuilder designs, constructs, and sells single-family and multi-family homes under the Beazer Homes, Gatherings and Choice Plans names. An ample supply of lots and a more efficient and less leveraged balance sheet will drive growth.
BZH — a Zacks Rank #1 stock — has gained 124.9% this year. The Zacks Consensus Estimate for its fiscal 2023 and 2024 earnings has been upwardly revised by 11% and 4.2%, respectively, over the past 60 days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 25.1%.
M/I Homes: Based in Columbus, OH, this is one of the nation's leading builders of single-family homes. It has been riding high, given its diverse markets, product offerings and strong balance sheet.
MHO — a Zacks Rank #1 stock — has jumped 98.6% year to date. MHO has seen an upward estimate revision of 1.5% and 9.6% for 2023 and 2024 earnings, respectively, over the past seven days. Its earnings topped consensus estimates in all the trailing four quarters, with the average surprise being 30%.
KB Home: Based in Los Angeles, CA, KB Home is a well-known homebuilder in the United States and one of the largest in the state. Homebuilding operations include building and designing homes that cater to first-time, move-up and active adult homebuyers on acquired or developed lands.
KBH — a Zacks Rank #1 stock — has gained 71.9% this year. The Zacks Consensus Estimate for its fiscal 2023 and 2024 earnings has been upwardly revised by 18.7% and 23.4%, respectively, over the past 30 days. The company’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed once, the average being 20.7%.
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Toll Brothers Inc. (TOL) : Free Stock Analysis Report
KB Home (KBH) : Free Stock Analysis Report
Lennar Corporation (LEN) : Free Stock Analysis Report
Beazer Homes USA, Inc. (BZH) : Free Stock Analysis Report
M/I Homes, Inc. (MHO) : Free Stock Analysis Report
