KB Home (KBH 24.70, -0.59, -2.33%) traded higher pre-market after the company
reported encouraging third quarter results last night.
While top-line growth has slowed this year, KB Home confirmed that its community count would resume growth next quarter and rise 10-15% in fiscal 2019.
KB Home noted that market conditions remain favorable, supported by the strong economy, including consumer confidence, wage growth acceleration, continued household formation, and the supply-demand deficit for new homes.
Management sees healthy demand at the entry level, where inventory is still low and prices remain competitive to the resale market.
Third quarter revenue grew 7% as deliveries rose 8% and ASP fell slightly, below guidance. The company lowered revenue and ASP guidance for the year due to more business falling outside California.
In addition, the company opted for price over pace, choosing to boost margins over chasing delivery volume.
As a result, gross margin came in at the high end of guidance for the third quarter and is expected to do the same for the year.
Third quarter operating margin grew 190 basis points to 9.3%. Earnings per share grew 71% to $0.87 -- the best quarterly result in twelve years.
What's more, community count growth going forward results in a favorable setup for fiscal 2019.
KBH Home was gapping up ~5%, but the stock was likely to find plenty of resistance in the mid-to-upper $20 range, as it has been trending lower all year.
Homebuilders have been out of favor due to concerns over affordability and higher rates and costs, even though the large publicly traded homebuilders continue to call for the strong housing market to continue.
August New Home sales data will be released at 10:00 this morning.
In addition, the Fed's outlook for rates going forward will impact homebuilders this afternoon.
KB Home has a $2.3 bln valuation and trades at ~1.2 book value, which is in-line with peers but a discount to larger homebuilders like Lennar (LEN), D.R. Horton (DHI) and PulteGroup (PHM).
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