KB Home (KBH) Rallies After Posting a Surprising Profit

Shares of Los Angeles-based homebuilding company KB Home (KBH: Charts, News) rallied sharply last Friday, after the company reported a surprise profit that trumped analysts, who had been expecting a loss. For its third quarter, KB Home earned 4 cents per share, or $3.3 million, up from a loss of 13 cents per share, or $9.6 million, it reported in the prior year quarter.

Analysts had expected KB Home to post a loss of 15 cents per share. Revenue rose 16% from the previous year to $424.5 million. Orders for new homes rose 3% to 1,900 units. The company's surprising beat was attributed to an encouraging recovery in the domestic housing market, in which sales and prices rose steadily during the quarter. Daily Chart
KB Home operates in nine states in the United States, with its business split into four segments - West Coast, Southwest, Central and Southeast. KB Home's properties are known for being "green homes" that efficiently use resources with minimal waste. The Fed's decision to buy up housing-related debt, as well as the recently unveiled QE3 stimulus plan, are keeping mortgage rates at all-time-lows. The 30-year fixed rate mortgage slid 6 basis points to 3.49% last week, matching a previous all-time low. A limited amount of new homes in the United States also drove up demand during the quarter. The National Association of Home Builders/Wells Fargo sentiment index revealed that U.S. homebuilder sentiment had risen to its highest level in the past six years. The S&P GPSHOME homebuilder index has nearly doubled since the beginning of 2012. U.S. housing starts rose 2.3% to 750,000 annual units, while single-family housing in August climbed at its fastest annual rate since April 2010. CEO Jeffrey Mezger noted, "It is clear that the recovery in housing is gaining momentum across the country as inventory levels are declining and home prices are on the rise." KB Home's backlog rose 33% from a year earlier, indicating further growth down the road in 2013. Mezger also noted that California, which was crippled by the housing meltdown in 2009, has shown "dramatic improvement" despite ongoing foreclosures. The average selling price of its homes was $245,000, an 8% increase from the prior year quarter, and a 5% sequential rise from the second quarter. The third quarter is now the ninth consecutive quarter that KB Home has increased its prices. By region, KB Home's western region increased its selling prices by 14%, its Southwest region rose by 13% while its Southeastern region rose by 6%. Margins climbed from 16.9% to 17.5%. Margins were slightly boosted by $7.4 million in favorable warranty adjustments. In the fourth quarter, KB Home expects a similar $16.5 million boost due to an insurance recovery of previously incurred expenses. Since KB Home has just returned to profitability, traditional fundamental metrics such as P/E and PEG ratios are negative. However, if the company can remain in the black for the remainder of 2013, it is poised to reap the benefits of a sharply rebounding U.S. housing market. The stock pays a quarterly dividend of 3 cents per share - a 0.7% yield at current prices. Other News About KBH KB Home Reports Surprise Quarterly Profit as Sales Jump KB Home is back in the black. KB Home Profit Shows Housing Recovery on Track; Stock Up KB Home beats earnings by 19 cents. Other Stocks in the News How Much Is Philip Morris Worth? Is big tobacco still a lucrative investment for the 21st century? What Olive Garden and Red Lobster Tell Us About the Economy Darden's main restaurants may actually be bellwethers of the broader economy. Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Sep 24, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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