Is KB Home (KBH)’s Recovery Over?

Page 1 of 2

KB Home (NYSE:KBH)On Thursday, KB Home (NYSE:KBH) will release its latest quarterly results. Yet, just as recent strong gains in the housing market had seemingly dispelled fears of further home-price declines once and for all, rising interest rates are sending mortgage costs upward, threatening to put an end to the housing recovery.

Unfortunately for investors, KB Home (NYSE:KBH) hasn’t even managed to get itself back to consistent profitability. The big question now is whether the company can deliver on its promise to get back in the black before rising bond yields make home prices less affordable for marginal buyers. Let’s take an early look at what’s been happening with KB Home over the past quarter, and what we’re likely to see in its quarterly report.

Stats on KB Home

Analyst EPS Estimate ($0.07)
Year-Ago EPS ($0.31)
Revenue Estimate $452.3 million
Change From Year-Ago Revenue 49%
Earnings Beats in Past 4 Quarters 4

Source: Yahoo! Finance.

Can KB Home surprise with earnings again this quarter?
Analysts continue to be optimistic about KB Home (NYSE:KBH)’s earnings prospects, having narrowed their loss estimates for the May quarter by $0.02 per share in recent months, and boosting their full-year fiscal 2013 and 2014 consensus earnings figures. The stock, however, has reversed from its recent highs, and now stands 13% below where it did in late March.

Like many of its peers, KB Home has reported some phenomenal numbers in past quarters. Back in March, the company posted sales gains of almost 60%, with losses narrowing by more than 70%, and a big boost in net orders and home deliveries.

Yet, homebuilders know that there’s a long way to go before they can declare victory over the housing bust. In a recent conference call, KB Home CEO Jeff Mezger pointed to strength not just in key markets like California, but throughout most of the cities in which it has a presence. That’s consistent with comments from Hovnanian Enterprises, Inc. (NYSE:HOV) and PulteGroup, Inc. (NYSE:PHM), with both of their CEOs also pointing to substantial sales growth compared to past years, noting broad-based demand across the regions where they do business.

One key to homebuilder success is differentiating a company from its rivals, and KB Home (NYSE:KBH) has teamed up with automaker Ford Motor Company (NYSE:F) to do just that. Their joint ZeroHouse 2.0 model home project features energy-efficient home furnishings and other energy-saving building techniques designed to minimize costs and take advantage of smart-grid technology. By doing high-energy jobs like charging electric cars, or making ice during nighttime hours rather than at times of peak demand, the ZeroHouse 2.0 aims to bring Southern California residents a view of the future.

Page 1 of 2