Market Overview

KB Home Earnings Preview: A Surge in Q1 Revenue Expected

KB Home (NYSE: KBH) is scheduled to report first-quarter fiscal 2012 results tomorrow, March 23, before the markets open.

The homebuilder reported a profit last quarter, ending a three-quarter string of losses, as well as a year-over-year revenue increase that broke a streak of three consecutive quarters of revenue declines. Investors no doubt will be looking for new profit and sales streaks to have begun, perhaps indicating a turnaround at KB Home and in the housing sector.

See also: Warren Buffett Bullish on Stocks and Housing

Expectations

Analysts on average predict that KB Home will post a net loss of $0.24 per share. That compares to a loss of $1.49 per share in the year-ago period and to a profit of $0.18 per share in the previous quarter. And 60 days ago, the first-quarter estimate was $0.27 per share. Note that per-share earnings results were better than consensus estimates in four of the past six three quarters. Fourth-quarter revenue is expected to have surged 71.5% from the same period of last year to total $337.7 million.

Looking back to the fourth quarter, the homebuilder said its profit fell 20.2% to $13.9 million, or $0.18 per share. Revenue increased 6.4% from a year ago to $479.9 million. Both numbers exceeded analyst expectations. Management said, “With our fourth quarter net orders up 38% from a year ago, and our year-end homes in backlog up 61%, we believe we are moving into 2012 well-positioned to achieve further improvement in our financial metrics.”

Looking ahead to the second quarter, analysts so far expect to see another per-share net loss, but one that is narrower than in both the first quarter and the year-ago quarter. Revenues are forecast to have grown both sequentially and year over year.

The Company

KB Home is one of the largest homebuilders in the United States. It constructs and sells various types of residential homes, including attached and detached single-family residential homes, townhomes and condominiums, in Arizona, California, Colorado, Florida, Maryland, Nevada, North Carolina, Texas and Virginia. The company also offers title and insurance services to homebuyers. It is headquartered in Los Angeles, was founded in 1957, and now has a market cap of $872.0 million.

Competitors include homebuilders DR Horton (NYSE: DHI), Lennar (NYSE: LEN) and PulteGroup (NYSE: PHM). DR Horton recently said it swung to a better-than-expected Q1 profit but revenues missed estimates. Lennar reports its results next week and analysts are looking for lower EPS and higher revenues. PulteGroup returned to profitability in Q4 and said its sales rose.

See also: Williams Financial Group Initiates DR Horton at Buy

During the three months that ended in February, KB Home announced the retirement of CBS (NYSE: CBS) CEO Les Moonves from the board and an offering of senior notes. The company also began offering net-zero energy homes in Houston, Las Vegas and Colorado.

Performance

KB Home has a long-term earnings per share growth forecast of 10.3%, a price to book ratio of 2.3 and a dividend yield of 2.2%. But the forward earnings multiple is higher than the industry average P/E ratio, as well as the forward earnings multiples of the competitors mentioned above. And short interest is about 49% of the float. Only four of 25 analysts polled who follow the stock recommend buying it.

The share price is more than 69% higher than at the beginning of the year, despite pulling back almost 9% in the past week. It remains above the 50-day and 200-day moving averages, where it has been since mid January. Year to date, the stock has outperformed the broader markets and the competitors mentioned above.

See also: Building Permits Signal Recovering Housing Market

ACTION ITEMS

Bullish: Investors interested in exchange traded funds invested in KB Home might want to consider the following trades:

  • iShares Dow Jones US Home Construction (NYSE: ITB) is more than 26% higher year to date.
  • SPDR S&P MidCap 400 (NYSE: MDY) is more than 13% higher year to date.
  • iShares S&P MidCap 400 Value Index (NYSE: IJJ) is about 13% higher year to date.
  • Vanguard Small Cap ETF (NYSE: VB) is almost 13% higher year to date.
Bearish:

Traders may prefer to consider these alternative positions in the same industry:

  • Hovnanian Enterprises (NYSE: HOV) is up more than 95% year to date.
  • Xinyuan Real Estate (NYSE: XIN) is up more than 61% year to date.
  • MDC Holdings (NYSE: MDC) is up more than 51% year to date.
Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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