This homebuilder beat earnings estimates by a penny last quarter, posting EPS of $0.23 per quarter. Homebuilding stocks are down, making them a buy as backlog begins to increase.
KB Home (KBH)
From AlphaProfit Sector Investors’ Newsletter
A rise in interest rates is likely to perk up the U. S. dollar and pose a headwind for revenues and profits of multinational companies. Investors are likely to look to incoming economic data to assess the likelihood of interest rates rising in December as well as the strength of the U. S. economy to withstand higher interest rates. Stock prices can be choppy as investors adjust their assessments.
Looking beyond this near-term adjustment phase, stronger economic growth should be good for corporate profits in total and support higher stock prices. We recommend investing 35% to 60% of total investable assets in equities at current stock prices, the specific percentage being dependent on investment objective and risk tolerance.
KB Home’s (KBH) future is promising. KB’s fiscal third quarter EPS declined 18% from a year ago even after sales rose 43% as rising labor costs crimped profit margin. Auguring well for the future, the homebuilder’s order backlog has risen 44% in the past year to $1.6 billion. The firm expects year-over-year gross margin comparison to improve in the next two quarters.
Volatile KB shares interest growth as well as value investors. They trade at 10.7X-forward EPS and at a 25% discount to book value versus prospects for 45% EPS growth in fiscal 2016. (Next earnings: Mid-Jan. 2016)
Sam Subramanian, PhD, AlphaProfit Sector Investors’ Newsletter, www.alphaprofit.com,
281-565-6963, November 2015