Yahoo Finance Built-to-Order & Land Buyout Strategies Aid KB Home (KBH)
KB Home KBH benefits from its focus on the Build-to-Order approach, a strong pricing strategy and reduced cancellation rates, accompanied by land buyout initiatives.
The company recently reported impressive results in second-quarter fiscal 2024 (ended May 31, 2024). Earnings and revenues beat the Zacks Consensus Estimate. The bottom line increased on a year-over-year basis amid a revenue decline. Despite the market experiencing volatility in the quarter due to increased mortgage rates, KBH observed a notable preference for custom-built homes among buyers. It witnessed a higher proportion of built-to-order home sales compared to previous periods, indicating a strong demand for personalized housing solutions despite consumer uncertainty.
Shares of this homebuilding company have rallied 37.9% in the past year compared with the Zacks Building Products - Home Builders industry’s 27.1% growth. Long-term housing market conditions appear favorable for KB Home, buoyed by a shortage of new and resale homes, strong employment figures, increasing wages, favorable demographics and growing household formations.
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This Zacks Rank #2 (Buy) company’s earnings estimates for the fiscal 2024 showcase growth rate of 15.9% from the year-ago period’s tally on a 6% revenue improvement. Its earnings topped the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 18.4%. Earnings estimates for fiscal 2024 have increased to $8.15 per share from $8.01 in the past 30 days. The positive trend signifies bullish analysts’ sentiments, robust fundamentals and prospects of further outperformance in the near term.
What Makes the Stock Attractive?
Focus on Built-to-Order Approach: KB Home benefits operationally and financially from its build-to-order model. The consistent flow of production ensures stable deliveries, which is particularly advantageous in times of housing market volatility. Delivering personalized homes in a shorter time frame makes KB Home's built-to-order homes even more appealing. As the gap between a 60-day spec home and a 4.5-month personalized build narrows, the company benefits from faster construction times, improving inventory turns and expanding the number of homes available for delivery. Built-to-order homes represented more than 60% of net orders in the second quarter.
Aggressive Land Buyout Strategy: KBH invests aggressively in land acquisition and development, mainly in high-end locations, which is critical for community count and top-line growth. During second-quarter fiscal 2024, KBH allocated more than $275 million toward land acquisitions and another $390 million for lot development, reflecting an increase of nearly 70% year over year. It is increasing its land investments this year to support future growth while staying mindful of financial assessments, product strategies and pricing. The company remains flexible to economic conditions, ready to adjust investment pace as needed.
At the end of the quarter, the company’s lot position stands at approximately 65,500 lots owned or controlled. Of the company’s total lots, 73% were owned and 27% were under contract. KB Home has a strong land pipeline and thus expects the third-quarter fiscal 2024 average community count to increase year over year in low-single digits. The company anticipates a flat quarter-end community count, resulting in a mid to high single-digit increase over the year-ago period’s figure.
Improving Orders: In second-quarter fiscal 2024, net new orders inched up 1.5% to 3,997 units and the net order value increased 6.8% to $2.03 billion year over year. Improved demand patterns accompanied by lower cancellation rates aided the uptick. The cancelation rate, as a percentage of gross orders, was 13% compared with 22% in the year-ago period.
Owing to this, the company raised its full-year housing revenues guidance to the $6.70-$6.90 billion band from the $6.50-$6.90 billion range expected earlier. The estimated figure is up from the fiscal 2023 level of $6.37 billion. With a healthy backlog and balanced production, KB Home is well-positioned to achieve its revenue projection this year.
Strong Pricing Strategy: Despite encountering pricing challenges, KBH experienced modest price increases in most communities during second-quarter fiscal 2024. The overall average selling price of homes delivered rose to $483,000 from $479,500 in the prior-year quarter, driven by changes in geographic and product mix.
For third-quarter 2024, KBH anticipates an average selling price of approximately $482,000, with expectations of a sequential increase in the fourth quarter due to higher deliveries from the West Coast region, which commands the highest average selling price among its regions. The company projects a full-year average selling price range of approximately $485,000 to $495,000, up from a prior projection of $480,000-$490,000. Taking the midpoint of the guidance, the figure is up from $481,300 reported a year ago.
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M-tron Industries, Inc. MPTI currently carries a Zacks Rank #2. It has topped earnings estimates in three of the trailing four quarters and missed once, with an average surprise of 26.7%. Shares of MPTI have risen 172.3% in the past year.
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Gates Industrial Corporation plc GTES presently carries a Zacks Rank #2. GTES has a trailing four-quarter earnings surprise of 14.9%, on average. Shares of GTES have gained 24.5% in the past year.
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