KBH Stock: Riding the housing boom, KB Home is headed for a strong 2022

The unexpected housing boom In these uncertain times has brought cheer to real estate firms and homebuilders but at the same time, the ongoing supply chain issues remain a challenge for most companies. Leading homebuilder KB Home (NYSE: KBH) looks all set to end the year on a high note, taking advantage of the increase in prices and high demand for its custom-designed houses.

Buy KBH?

The Los Angeles-based company’s third-quarter earnings rose sharply but revenues fell short of expectations amid delays in deliveries, reflecting the mixed trend. After a strong start to 2021, the company’s stock mostly traded sideways but stayed above its 52-week average. Though the management’s positive outlook has already been priced into the stock, it looks poised to make decent gains in the next twelve months.

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Read management/analysts’ comments on KB Home’s Q3 results

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Also, the current valuation looks just right. Considering the strength of the company’s balance sheet — thanks to the stable cash flow — and impressive track record, KBH is a safe bet for the long term.

KB Home has opened new communities at regular intervals, with the latest being Brookside Preserve in St. Johns County that was launched a few months ago. It is expected that the company’s build-transfer-operate business model would help minimize the impact in the event of a crisis. In the near term, steady order inflows and high backlogs should drive revenue growth.

From KB Home’s Q3 2021 earnings conference call:

“Homeownership remains compelling and attainable and we believe the drivers are in place to support healthy market conditions for the foreseeable future. An insufficient level of supply exists at our price points to meet the demand for millennials and Gen Zs, which together number roughly $140 million. These two cohorts value the personalization and choice in our built-to-order business model, which is a significant factor in why our absorption rates have consistently been among the highest in the industry.“

Risks

Despite widespread excitement over the housing rally, there are growing concerns about a potential bubble. Also, demand will likely moderate as 2022 progresses when the inventory shortage is expected to ease, resulting in excess supply that would affect sales. 

The company’s earnings performance has been impressive in the recent past, with the numbers mostly beating estimates. In the third quarter, net income nearly doubled to $150.10 million or $1.60 per share from $78.42 million or $0.83 per share in the same period of last year. The bottom line benefited from a 47% jump in revenues to $1.47 billion, which also topped expectations.

Q4 Report on Tap

KB Home is preparing for its final earnings release for the fiscal year, which is expected on January 12 after the regular trading hours. Market watchers predict a 57% growth in fourth-quarter earnings on revenues of $1.71 billion, which represents a 43% year-on-year increase.

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Lennar thrives on strong housing demand. Is the stock a buy?

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KBH is currently trading up 35% from the levels seen at the beginning of the year. The stock traded down 1% early Wednesday, after ending the previous session higher.