We issued an updated research report on KB Home KBH on Apr 8, 2015.
On Mar 20, 2015, KB Home reported better-than-expected first-quarter fiscal 2015 results and provided an encouraging gross margin outlook for the upcoming quarters of 2015.
KB Home’s adjusted earnings of 7 cents per share in the first quarter of fiscal 2015 beat the consensus mark of 2 cents by 250% despite a year-over-year decline. Revenues increased 29% year over year on the back of higher housing and land sale revenues.
The company’s strategic initiative includes increasing community count, boosting revenue per community and increasing profitability per unit. The better first-quarter results indicate that these efforts may have started to pay off. In addition, strategic shift in geographic mix and favorable macro economic conditions in the company’s served markets is fueling higher prices.
However, higher construction, labor and material costs, start up field costs related to new home community openings, competitive pricing pressures, and the close-out of higher margin communities in the West Coast homebuilding region in late 2014 hurt margins in the first quarter
Nevertheless, KB Home is optimistic about the increasing housing demand in the spring selling season. KB Home expects to focus on driving community openings, which will lead to an increase in order and backlogs in the first half of 2015. Stronger revenue increase is expected in the second half of 2015.
Based on improving leverage from increased revenues and higher community count, housing gross margin is expected to improve sequentially in the rest of 2015.
KB Home carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Investors interested in the building sector can also consider Toll Brothers Inc. TOL, Ryland Group Inc. RYL and DR Horton Inc. DHI. While Toll Brothers sports a Zacks Rank #1 (Strong Buy), Ryland Group and DR Horton carry a Zacks Rank #2.
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