KB Home missed earnings and revenue estimates for its fourth quarter late Wednesday. The leading new homebuilder gave a lackluster Q1 housing forecast and signaled it's cutting prices to boost homebuying demand. KBH stock fell Thursday, taking down several other homebuilder stocks as well.
The KB Home earnings report shed light on homebuilder fundamentals after a challenging year. Many analysts now expect a housing recovery in the second half of 2023.
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KB Home Earnings
Estimates: Analysts polled by FactSet expect KB Home earnings to soar nearly 50%, year over year, to $2.86 per share. Revenue is seen growing nearly 19% to $1.985 billion. Both earnings and revenue growth are forecast to slow vs. the prior third quarter.
Results: KBH earnings rose 29% to $2.47. Revenue increased 16% to $1.94 billion.
Current conditions remain challenging, KB Home CEO Jeffrey Mezger said in an earnings release late Wednesday.
"High mortgage rates and persistent inflation, together with an uncertain economy, have made homebuyers more cautious since the middle of last year," Mezger said. He added the company prioritized deliveries in Q4 rather than additional sales "during this seasonally slower time frame."
The CEO also said KB Home is "getting more aggressive with our pricing ahead of the spring selling season, in order to generate new orders."
Outlook: For Q1, the company guided housing revenue of $1.25 billion-$1.40 billion. At the midpoint of $1.325 billion, that is below FactSet analyst of $1.374 billion.
Analysts project KB Home revenue will decline 15% to $5.9 billion in fiscal 2023. They expect KB Home earnings per share to dive nearly 33% to $6.42 next year.
KBH Stock, Homebuilder Stocks
The IBD 50 stock lost 2.9% to 34.91 on the stock market today, holding above the 50-day and 200-day moving averages. The relative strength line for KBH stock has risen since October 2022, a sign of recent outperformance vs. the S&P 500 index.
Last week, KBH stock jumped from the 21-day line and near the 10-week line. But it's not offering a clear buy point currently.
IBD 50 peers Pulte Group and Meritage Homes gained nearly 1% and were unchanged, respectively, Thursday.
D.R. Horton was also roughly flat. Lennar advanced 0.6%. Both homebuilder stocks are testing buy points after breakouts last week.
Housing Market Correction
The housing market went into a correction in 2022 as mortgages rates spiked to 7% from 3%, and demand deteriorated in the latter half of the year.
Higher mortgage rates continue to test home affordability, keeping many homebuyers sidelined.
In 2023, housing demand will remain soft, especially in the first half, "but we see a favorable setup for (homebuilder) stocks with lower mortgage rates on the horizon," Bank of America analysts wrote in a Jan. 11 note to clients.
The Bank of America analysts on Wednesday named NVR their top pick, citing its historic outperformance in weak housing markets due to an "asset-light" model. Unlike peers, NVR tends not to own and develop land, instead negotiating with developers for an exclusive option on finished lots. The analysts upgraded Pulte Group and Toll Brothers to buy from neutral.
"We forecast housing starts to slow to 1.15 million in 2023 (down 26% year over year) before rebounding to 1.3-1.4 million in 2024," the BofA analysts added.
TOL stock climbed 1% Thursday. NVR shares added 0.4%.
More broadly, housing-related retailers and building-materials makers also are showing strength.
In the past year, KBH stock has fallen 16.7%, almost in line with the S&P 500 index. But the homebuilder stock has rallied 23.3% in the past three months, far ahead of a 7.8% gain for the large-cap bogey.
