Homebuilder KB Home reported 3Q earnings of $0.83 per share, crushing Street estimates of $0.54 per share. Its revenues of about $1 billion topped analysts’ estimates of $893.2 million on robust housing demand, driven by historically low mortgage interest rates and a limited supply of resale inventory.
Despite upbeat 3Q results, shares of KB Home (KBH) dipped 1.5% in after-hours on Tuesday. KB home’s revenues declined 14% year-over-year on lower deliveries in the quarter. However, earnings grew 14% year-over-year, led by a housing gross profit margin of 20.6%, excluding inventory-related charges.
The homebuilder’s orders through August rose 27% year-over-year to 4,214, beating analysts’ expectations of 3,920 orders, amid the pandemic-led demand for new homes across the US. According to a Bloomberg report, KB Home’s rival builders reported even stronger demand in orders. While M.D.C. Holdings reported a 75% year-over-year jump in July and August orders, luxury builder Toll Brothers reported a 110% year-over-year order growth from Aug. 1 to Sept. 15 period.
Assuming favorable market conditions, KB Home’s CEO Jeffrey Mezger said “we anticipate accelerating our profitable growth next year, as we remain focused on generating higher returns.” (See KBH stock analysis on TipRanks).
On Sept. 17, ahead of 3Q results, Barclays analyst Matthew Bouley raised the stock’s price target to $42 (3.7% upside potential) from $39 and maintained a Buy rating, as he remains “tactically positive” on builder stocks citing robust housing demand. Bouley said the current housing environment is likely to support order strength and pricing into fiscal 2021.
Currently, the Street has a cautiously optimistic outlook on KBH. The Moderate Buy analyst consensus is based on 6 Buys, 3 Holds, and 1 Sell. The $38.88 average price target implies downside potential of 4% to current levels. Shares have gained about 18.2% year-to-date.