KB Home is Thursday's IBD Stock Of The Day, as homebuilders broadly rallied on surprisingly soft consumer price index, lifting hopes for rate cuts sooner rather than later. KBH stock jumped, flashing a buy signal.
Homebuilders for more than a year have said that housing affordability has been tested by interest rate movements. KB Home for one has turned to incentives to keep prices down and drum up demand amid increased interest rates. However, with the possibility of rate cuts, more people could be looking at purchasing homes without incentives.
Late last month, KB Home received a handful of modest price target hikes from analysts following better-than-expected Q2 earnings.
KB Home Earnings
KB Home reported earnings at $2.15 a share, up 11%. Revenue came in at $1.71 billion, a 3% decline. Deliveries dipped 4%, to 3,523 and the average selling price increased a fraction, to $483,000.
KBH management also tightened its projected revenue range for the year to between $6.7 billion and $6.9 billion, vs. earlier guidance of $6.5 billion to $6.9 billion. It lifted estimates for average selling prices to between $485,000 to $495,000, from $480,000 to $490,000.
The company indicated mortgage rates and incentives have been higher than the company expected at the beginning of the fiscal year. At the time, those conditions had not changed so far in Q3 despite the recent pullback in mortgage rates, according to KBH executives.
Analysts forecast full-fiscal year earnings growing 19% to $8.35 per share with revenue increasing 7% to $6.84 billion.
The U.S. Housing Market
The big picture in the U.S. is that of a long-term housing shortage. The construction of new homes has not kept pace with the growing population. Rising material costs, supply-chain issues and labor shortages since the Covid pandemic have exacerbated the issue.
The shortage is currently running at a deficit of about 5.5 million homes, according to the National Association of Realtors (NAR). In 2023, new-home prices remained strong and demand steady as high mortgage rates left owners of existing homes holding tight — not wanting to sell and move up into more expensive mortgages.
Meanwhile, the National Association of Home Builders' June survey showed its confidence index dropped to 43 for the month, down two points from May and to its lowest level since December.
The Commerce Department reported last month that May housing starts fell 5.5%, below expectations and to their lowest mark since June 2020. Housing starts fell in April as mortgage rates crept higher.
NAR data shows May existing-home sales fell slightly as the median existing-home sales price jumped 5.8% to $419,300 — the highest price ever recorded and the eleventh consecutive month of year-over-year price gains.
NAR reports June existing-home data on July 23.
KB Home Stock Performance
Shares of KBH surged 10.3% to 73.81 during market action on Thursday. KB Home stock is in a flat base pattern with an official 74.66 buy point, according to MarketSurge pattern recognition.
KBH on Thursday leapt above its 50-day moving average, broke a downward-sloping trendline and clearing some short-term levels. All those offered reasons for an early entry.
On July 9, KB Home stock fell to 65.32, its lowest level since May. KBH shares have gained around 16% in 2024.
Other homebuilders bounced Thursday as well, with Toll Brothers and Lennar running just above the 50-day lines.
Green Brick Partners spiked 10% clearing a trendline and short-term highs while nearing an official buy point. D.R. Horton gained 7.3%, gapping above its 50-day line.
The IBD-tracked Building-Residential/Commercial industry group surged 60% in 2023. This year, the 22 stocks in the group have collectively advanced around 10%.
KB Home stock has an 81 Composite Rating out of a best-possible 99. Shares have an 84 Relative Strength Rating and a 94 EPS Rating.
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