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KB Home pleased Wall Street analysts with its fiscal second-quarter results and full-year outlook, but those weren’t good enough for investors who had bid up the stock to a 16-year high ahead of the results.
The home builder’s
KBH,
shares slumped 1.7% in morning trading Thursday, putting them on track to snap a four-day winning streak and to mark only a third loss in 15 trading sessions.
The stock closed Wednesday at $52.01 — the highest price since February 2007 — one day after government data showed a strong and surprising increase in new-home construction.
The company reported late Wednesday net income for the quarter to May 31 that fell to $164.4 million, or $1.94 a share, from $210.7 million, or $2.32 a share, in the same period a year ago. That beat the FactSet consensus for earnings per share of $1.33.
Revenue grew 2.6% to $1.76 billion, well above the FactSet consensus of $1.43 billion, as homes delivered rose 5.7% to 3,666, far exceeding expectations of 2,971.
Although average selling prices fell 3% to $479,500, the trend of having to adjust pricing to stimulate sales reversed during the quarter. Chief Financial Officer Robert McGibney said on the conference call with analysts that the company was able to raise prices in about two-thirds of its communities.
The company said the increase in demand that it started to see in February continued through June, with net orders rising month by month during the second quarter.
“With respect to demand, buyers are adjusting to higher mortgage rates, and the continuation of the more stable rate environment is a positive factor,” said Chief Executive Jeff Mezger on the call, according to an AlphaSense transcript.
Looking ahead, the company said it expects third-quarter new orders of between 3,000 and 3,500, compared with the current FactSet consensus of 3,052. The company also raised its full-year housing-revenue forecast to $5.8 billion-$6.2 billion from $5.2 billion-$5.9 billion.
UBS analyst John Lovallo cheered the results, not only for the company’s sake but for the broader home-builder sector.
In a note to clients, he wrote that following KB Home’s results “it is becoming increasingly clear that not only are the public builders gaining market share” from a tight resale market and private competitors that are becoming increasingly strained, but that the “overall demand environment is improving.”
Lovallo reiterated the buy rating he’s had on KB Home since January 2022 and boosted his stock-price target by 35%, to $65.
Wedbush’s Jay McCanless also affirmed the bullish rating he’s had on the stock since January 2021. He bumped up his price target to $64 from $55.
“We think KB’s commentary around improving pricing power and rising demand levels should be a positive read-through for the public builders,” McCanless wrote.
KB’s stock has soared 60.6% year to date, while the iShares U.S. Home Construction exchange-traded fund
ITB,
has rallied 35% and the S&P 500
SPX,
has gained 13.7%.
