Raymond James: 'Strong Entry Point' For KB Home

Following strong upside and continued momentum, one analyst raised estimates for homebuilding company KB Home KBH

The Analyst

In a Sept. 27 note, Raymond James analyst Buck Horne upgraded KB Home from Market Perform to Outperform with a $30 price target.

The Thesis

KB Home's earnings came in at 87 cents per share, beat estimates and amounting to 68-percent growth year-over-year.

“Primary upside variances relative to our model included: 1) significant gross margin upside (18.7% vs. our 17.8% est.), partially driven by a favorable mix of California home deliveries; 2) a lower than expected SG&A ratio (9.4% vs. our 9.6% est.) which marked a new 3Q company record; and 3) a 24% effective tax rate which came in below 27% guidance, representing a $0.04/share benefit.”

The company’s net orders increased 3 percent, overcoming a 7-percent decline in average community count driven by timing issues between the early close-out of communities versus delayed new openings, Horne reported.

“Nevertheless, KBH reported its third consecutive quarter of double-digit y/y growth in sales absorption per community (+11% in 3Q), boosted by a 35% y/y order increase in the Southeast region where KBH’s Florida operations are picking up significant market share.”

Horne considers the company’s strong absorption, inventory position and 2019 community count growth sufficient to raise guidance, despite a slightly less favorable margin mix.