Buy KB Home Stock Before Q1 Earnings as Longer-Term Play?
Zacks Investment Research | Mar 22, 2021 07:07AM ET
The unofficial start of the first quarter earnings season begins with the big banks on April 14. But earnings rarely sleep, with results from Adobe (NASDAQ:ADBE) and other giants due out this week. Homebuilder KB Home (NYSE:KBH) KBH is also set to release its first quarter fiscal 2021 financial results after the closing bell on Wednesday, March 24.
Let’s see if it’s worth buying KBH shares ahead of its Q1 release as the stock sits near its highs amid a U.S. housing boom.
Building Blocks…
KB Home operates in 45 markets in eight different states, mostly in highly desirable areas such as Colorado, Arizona, Texas, California, Nevada, and Washington. The homebuilder allows buyers to customize many aspects of their homes, including everything from floorplans to countertops.
KBH is also committed to more energy-efficient offerings. In fact, the firm boasts that it is “the first builder to make every home we build ENERGY STAR certified.”
A majority of KBH’s clients are first-time buyers. But it also sold roughly 40% of its homes in the fourth quarter to move-up buyers and active adults, which gives its portfolio a nice mix. The Los Angeles-based firm is poised to benefit from the booming housing market that saw U.S. home sales hit their highest levels since 2006 in 2020.
More importantly, inventory is tight and the market is finally being driven by millennials. These conditions stand to benefit homebuilders, and even though interest rates are on the rise, they remain historically low.
KBH topped our fourth estimates in mid-January, with net orders up 42%. The company’s overall 2020 revenue for the period ended on November 30 did, however, fall 8% amid early coronavirus-based setbacks. But Wall Street looked ahead to better days, with its backlog value up 63% to $3 billion, and pushed the stock up to new 52-week highs of over $47 a share on March 17.
This is part of a strong run off its March 2020 lows that’s seen it blow away its highly-ranked industry. The nearby chart also shows that KBH has doubled its industry in the last five years as well. KBH closed regular hours Monday up 1.8% to $44.97 a share, or around 5% off its recent highs.
On the valuation front, the stock trades at a discount to its Building Products - Home Builders space in terms of both forward earnings and sales, and it rests below its own year-long medians. The Home Builders industry also sits in the top 13% of our over 250 Zacks industries and includes Lennar CCS , and other highly-ranked Zacks stocks.
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Bottom Line
Zacks estimates call for KB Home’s first quarter revenue to pop 12.5% to help lift its adjusted earnings by 38%. Peeking further ahead, the company’s FY21 revenue is projected to soar 41% to $5.91 billion, with FY22 expected to climb another 7%. The homebuilder’s adjusted EPS figures are projected to climb by 63% and 9%, respectively over this same stretch.
KB Home’s earnings revisions have remained unchanged recently to help it land a Zacks Rank #3 (Hold) heading into its Wednesday release. The stock does grab an “A” grade for Value and a “B” for Growth in our Style Scores system and five of the 11 broker recommendations Zacks has are “Strong Buys,” with none below a “Hold.”
KB Home has easily topped our earnings estimates in three out of the last four quarters and its 1.36% dividend yield roughly matches the S&P 500 average. Therefore, investors might want to consider buying KBH as a longer-term play on the housing market that is poised to continue to grow.
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