On Oct 10, 2014, shares of KB Home (KBH) dropped to a 52-week low of $14.06 and eventually closed at $14.08 with a negative year-to-date return of 22%.
What Led to the Drop?
The share price of KB Home has declined 12.4% since the homebuilding company reported disappointing third-quarter 2014 results on Sep 24. The company missed the Zacks Consensus Estimate for both revenues and earnings by a significant margin.
KB Home’s adjusted earnings of 28 cents per share in the third quarter of fiscal 2014 declined 6.7% from the year-ago earnings of 30 cents per share. Earnings were hurt by higher selling, general and administrative expense ratio, weaker orders and impairment charge for planned future land sale.
Though total revenue of $589.2 million in the third quarter increased 7% from the year-ago quarter on the back of increased pricing, it was hurt by an unexpected decline in the number of homes delivered and weak volumes/orders.
The number of homes delivered in the third quarter of fiscal 2014 decreased 1.8% from the year-ago quarter, as deliveries were deferred to the fourth quarter owing to delays in construction and customer mortgage loan closings. Home deliveries were also delayed due to the impact of the transition from the company’s preferred mortgage relationship to a joint venture relationship (Home Community Mortgage) with Nationstar.
KB Home’s number of homes closed has been declining for the past few quarters. A shortage in buildable lots and skilled labor is limiting the production of homes, thereby lowering its supply and resulting in unmet demand.
Though order trends improved year over year, it declined about 20% sequentially.
KB Home carries Zacks Rank #3 (Hold).
Other Stock to Consider
Better-ranked stocks in the building and related sector include Hovnanian Enterprises Inc. (HOV), Fastenal Company (FAST) and The Home Depot, Inc. (HD), each carrying a Zacks Rank #2 (Buy).
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