KB Home (KBH) Hits A New 52-Week High: Can It Scale Higher?

On Dec 27, shares of KB Home (NYSE:KBH) rallied to a 52-week high of $32.20. The stock pulled back to end the trading session at $31.82.

The homebuilding company has seen its shares rise roughly 25.9% so far this year significantly outperforming the 9.7% increase for the industry over the same period. Also, the company has outpaced the industry in each of the 4-week, 12-week and 52-week time frames.

The stock has a market cap of $2.7 billion. Average volume of shares traded over the last three months was approximately 2.55 million. Over the last one week, the Zacks Consensus Estimate for KB Home moved up 0.6% for fiscal 2017 and 0.9% for fiscal 2018, reflecting analysts’ optimism. Earnings for this Zacks Rank #3 (Hold) company are expected to grow 57.7% and 23% in fiscal 2017 and 2018, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We also note that the company displays long-term earnings growth rate of 19.5%, reinstating investors’ confidence in the stock.

Can the Rally Continue?

The company’s four strategic initiatives to drive profit and revenues are encouraging. These initiatives include giving a boost to community count, achieving higher revenues per community and higher profitability per unit, and increasing asset efficiency and return on capital invested. KB Home remains focused on its core KB2020 business strategy, which aims to boost scale in existing geographic footprint, improve profitability per unit, creating higher operating margin, while generating positive cash flow to redeploy for growth and debt reduction.

The company reported an impressive 23% growth in revenues, double-digit increase in deliveries and 41% surge in net income, in the first nine months of 2017. The upside was primarily driven by the ongoing favorable housing industry fundamentals.

Per the Census Bureau and the Department of Housing and Urban Development, sales of new residential houses jumped 17.5%. This was above the revised rate in October and 26.6% more than the year-ago estimate in November 2017. The data comes on the heels of a report issued by the National Association of Realtors (“NAR”), which reflected that existing home sales jumped for the third straight month in November. According to the NAR, November existing-home sales represented the strongest pace since December 2006, with sales growing to 5.81 million, increasing 5.6% from October.

Homebuilding companies like KB Home, NVR, Inc. (NYSE:NVR) , Toll Brothers, Inc. (NYSE:TOL) , Lennar Corporation (NYSE:LEN) are expected to continue to gain as the positive momentum is expected to continue to boost home sales in 2018 owing to strong consumer confidence, favorable demographics, pent-up demand, job gains and income growth. Also, the sales shortfall resulting from the hurricanes should be recovered in 2018.

Moreover, we are also encouraged by the company’s aggressive land acquisition strategy. KB Home invests aggressively in land acquisition and development, primarily in high-end locations, which is critical for community count as well as top-line growth. The company invested $1.4 billion in land and development in fiscal 2016, significantly higher than $967.2 million in fiscal 2015. Inventories grew to $3.51 billion, with investments in land acquisition and development totaling $1.12 billion for the first nine months of fiscal 2017.

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