KB Home (KBH) is trading higher after the company reported better than expected second quarter results and raised margin guidance for the year.
The new home market remains robust amid tight supply and strong demand. Both Lennar (LEN) and KB Home confirmed that coming out of the Spring selling season this week.
Second quarter homebuilding revenue grew 10% to $1.1 billion versus $990 million to $1.05 billion guidance as deliveries grew 5%.
Gross margin expanded 170 basis points year-over-year to 17.1%, or 17.7% excluding inventory charges, versus guidance for a 16.8-17.2%.
Concerns about higher labor and lumber costs have seemingly weighed on homebuilder stocks this year but KB Home actually raised gross and operating margin guidance for the year.
Management also said it has yet to see any pause from consumers due to higher mortgage rates.
Order growth was held back by a dip in the community count, which will continue in the third quarter. However, KB Home expects community count growth exiting fiscal 2018 and every quarter in fiscal 2019 so the outlook is encouraging. Ending backlog value grew 3% to $2.24 billion -- the highest second quarter backlog value in 11 years.
The company is also on track/ahead of pace on its fiscal 2019 targets.
KB Home is leading homebuilder stocks higher today: KB Home (KBH +7%), LGI Homes (LGIH +3%), M.D.C. (MDC +2%), PulteGroup (PHM +2.2%), M/I Homes (MHO +2%), D.R. Horton (DHI +2%), Toll Brothers (TOL +2%).
With a $2.4 billion market capitalization, KBH trades at 1.4x book value, which is roughly in-line with the smaller homebuilders. The largest companies in the sector enjoy scale and trade closer to 2x book value.
Bank of America Merrill Lynch upgraded the stock two notches in somewhat rare form this morning, to Buy from Underpform this morning.