KB Home Constructs Bullish Price Action As Wider Industry Thrives

Homebuilders have been a leading industry throughout 2023, defying fears that high interest rates would keep buyers away. KB Home KBH, a mid-cap in the industry, has been forming a bullish area of price consolidation that might be hard to spot on a chart. 

KB Home is a component of the iShares U.S. Home Construction ETF ITB, which has returned 16.22% in the past three months and 45.41% year-to-date. 

Other top industry performers include large caps D.R. Horton Inc. DHI, Lennar Corp. LEN, NVR Inc. NVR, PulteGroup Inc. PHM and Toll Brothers TOL, all of which are larger than KB Home.

While those stocks are all showing outstanding price and earnings strength, smaller industry peers such as Beazer Homes USA Inc. BZH and M/I Homes Inc. MHO are even better performers.

Homebuilders Nestled Comfortably In Sweet Spot

In a twist, it's actually been high interest rates that bulldozed obstacles for the industry. High mortgage rates are keeping homeowners in place, as they don't want to replace a low-interest-rate loan with one that's significantly higher. 

U.S. existing home sales have skidded in recent months for that reason.

There are plenty of would-be buyers, just not enough homes. Enter the homebuilders, who are ready to address the need. 

It's a good sign when multiple stocks within an industry are trending higher at the same time. When that happens, it indicates a collective positive sentiment based on industry growth. That conviction tends to foster even more confidence.

Stock At Multi-Year Highs

KB Home, a Los Angeles-based midcap, is down 1.87% in the past month as it could be setting up for further gains. It's notched a return of  17.06% in the past six months and 68.98% year to date. The stock is trading at its best levels since 2007. 

KB Home has been forming a series of orderly consolidations. 

Take a look at the KB Home chart. The stock broke out of a cup-with-handle base on April 20, then pulled back twice since then, both times getting solid support at its 50-day moving average. Each time, it cleared its previous high and continued to rally.

Stock Forming Shallow Base

The stock is currently forming another base with a 7% correction from peak to trough. It found support above its 50-day line, bouncing higher.

It's somewhat unusual to see a series of consolidations in succession like that, but the important part is that the stock continues finding support and climbing up from that, a bullish sign. 

The buy point in that base is now above $55.37. 

All this optimism is despite the fact that KB Home is expected to earn $6.43 a share this year, a decrease of 29%. 

Earnings Expected To Rebound Next Year

That's seen rebounding next year to $7.13 per share, an increase of 11%.

In its second-quarter results, issued in June, the company said it expects housing revenue in the range of $5.80 billion to $6.20 billion.

It expects an average selling price of approximately $485,000.

Even if earnings decline as expected, the stock could still rise if the company beats Wall Street views, or if the company issues particularly optimistic guidance.

Analysts Say Hold

KB Home's analyst ratings show a consensus of "hold" on the stock.

Since the most recent earnings report, eight analysts boosted their price targets or upgraded the stock. The stock got an initial bounce after the report, as results exceeded the high end of the company's previous guidance. 

KB is focused on first-time buyers, and first-move-up buyers, while also appealing to second-time move-up buyers and empty nesters. The company says those constitute the largest homebuyer demand segments.

Increased Shareholder Payout

KB Home's dividend yield is 1.49%, and its annual dividend is 80 cents a share. The company boosted its shareholder payout this year after holding steady in 2022. It has a long history of paying dividends.

It also returns capital to shareholders via share buybacks. In the most recent quarter, the company repurchased approximately 2.2 million shares of its outstanding common stock at a total cost of $92.1 million.