(KB Home earnings report updated with analyst action and commentary.)



) --

KB Home

(KBH) - Get KB Home Report

shares jumped Friday morning after the struggling homebuilder posted a surprise quarterly profit.

KB Home said cost cuts led it to post a fourth-quarter profit of $17.4 million, or 23 cents per share, in the period ended Nov. 30. The recent quarter's surprise profit reflected a one-time tax benefit of $2 million. Analysts had been looking for the homebuilder to book a loss of $16.1 million, or 17 cents per share.

Stifel Nicolaus analyst Michael Widner noted that KB Home's "dramatic decline in

selling, general and administrative expenses and sizable improvement in gross margins drove the beat," adding that "results took KBH from being a relative laggard to the group on SG&A (as a percent of revenue) and about average on gross margins (excluding impairments) to above average on both metrics."

>> 10 Top Buy-Rated Real Estate Stocks for 2011

"We were pleasantly surprised, particularly with the improvements coming in a tough quarter for housing," Widner said.

Investors were also impressed. KB Home shares shot up more than 8% amid heavy trading in the first minutes of trading before falling back slightly. About halfway through the session KB Home shares were still up 5.4% to $15.11. More than 7 million shares were in play, compared with their average full-daily trading volume of 2.9 million.

Standard & Poor's homebuilders analyst Ken Leon maintained a strong sell rating on KBH shares but raised his price target by $3 to $12, citing the firm's 1.6% decline in year-over-year revenue, down 10% sequentially from the prior quarter.

"With backlog decreasing 38% in

the fourth quarter and contract cancellations down 25%, we forecast flat revenues in

the fiscal year 2011, ended in November," he noted.

The analyst widened his fiscal 2011 EPS estimate to a loss of 50 cents per share, from his prior estimate for a loss of 30 cents. Leon also raised his fiscal 2012 EPS estimate to 10 cents per share, up from his prior view for break even profitability.

KB Home said revenue in the quarter came to $451 million, down from $674.6 million in the year-earlier quarter as housing and land sale revenues slowed, but higher than the $441.3 million analysts had been looking for.

>> Homebuilder Stocks: Behind the Numbers

Fewer homes delivered was partially offset by an increase in the average selling price, the builder said. KB Home's core customers tend to be first-time homebuyers.

Widner said KB Home's new order volume was "disappointing."

"At 1,085, new orders (down 25% year-over-year) were well below our estimate. In part we believe this reflects a tough overall quarter for homebuilding but we do have concerns it may reflect market share slippage or lower community count than we had projected (140)."

The analyst said he will look to the company's conference call with investors, scheduled for later Friday morning, for "additional color" regarding KB Home's outlook for material community count growth in 2011.

Elsewhere in the homebuilder sector,

Hovnanian Enterprises

(HOV) - Get Hovnanian Enterprises, Inc. Class A Report

, which reported a double-digit drop in new-home contracts despite narrowing its losses in its recent quarter, saw its shares add 0.7% to $4.50 Friday morning.

Hovnanian sold 13% fewer homes in its fiscal fourth quarter, ended Oct. 31. Excluding joint ventures, it sold 1,078 homes, while completed sales fell almost 17% year-over-year to 1,204. The average price of its holds fell 12% to $261,530.

"Hovnanian is the weakest homebuilder of all of its peers, and its financial condition remains under pressure despite two years of debt tenders, exchanges, and open market purchases of bonds at steep discounts," noted Vicki Bryan, senior high yield analyst at Gimme Credit.

She maintained an underperform rating on HOV shares.

Building peer

Toll Brothers

(TOL) - Get Toll Brothers, Inc. Report

saw its share upgraded Friday to overweight, from equal weight, by analysts at

Barclays Capital

(BCS) - Get Barclays PLC Sponsored ADR Report

. The firm set a $23 price target on the stock.

Barclays also boosted its price target on


(LEN) - Get Lennar Corporation Class A Report

by $2 to $23, maintaining an overweight rating on the stock.

Analysts from

Credit Suisse

(CS) - Get Credit Suisse Group AG Sponsored ADR Report

, meanwhile, downgraded Lennar to neutral from outperform, setting a $19 price target on the builder's shares.

TheStreet Recommends

Earlier this week analysts from Wells Fargo issued upgrades on shares of

D.R. Horton

(DHI) - Get D.R. Horton, Inc. Report

and small-cap builder

Meritage Homes

(MTH) - Get Meritage Homes Corporation Report

. Both builders now have outperform ratings, up from Wells Fargo's prior ratings of market perform.

Hovnanian shares were 2.2% lower at $4.37 on Friday, Toll Brothers lost 1% to $20.72, D.R. Horton 0.6% and Meritage 2.6%. Lennar bucked the trend, adding 1% to $19.34.

The U.S. housing market continues to struggle and has been under tremendous pressure for some time. Demand fell further after the

expiration of federal tax credits for homebuyers in April of 2010

, and continues to suffer amid still-high unemployment and foreclosures.

Disappointing November homebuilding permits data further confirms that the "housing market recovery remains fragile at best," Kevin Brungardt, CEO of RoundPoint Financial, a mortgage origination and servicing firm, told the



Existing-home sales rose 5.6% in November while

new-home sales increased 5.5% in the month.

He cited the usual suspects of high unemployment, potential buyers' low confidence among in the stability of home prices and the large inventory of distressed properties that still need to be cleared.

Brungardt estimated that the shadow inventory of homes could take two to three years to clear to a point where housing supply and demand begin to match up again, and that no acknowledged housing bottom will appear until that shadow inventory is significantly curtailed.

>> Housing Market to Recover in 2013: Analyst

Homebuilders should expect material dampening of

new-home purchases until then, Brungardt forecast. Current homeowners will also continue to be impacted unfavorably.

The homebuilder sector is well off its late-spring peak, when

buyers were rushing to take advantage of federal tax credits for homebuyers, and is only slightly higher than at the beginning of 2010. Whereas other sectors have begun a rebound in earnest, the housing sector continues to lag.


SPDR S&P Homebuilders

(XHB) - Get SPDR S&P Homebuilders ETF Report

, an exchange-traded fund that tracks the homebuilder sector, remains more than 60% off its peak of $46.08 in early 2006. The

iShares Dow Jones US Home Construction

(ITB) - Get iShares U.S. Home Construction ETF Report

ETF remains more than 70% off its peak of $50.10 in the spring of 2006.

-- Written by Miriam Marcus Reimer in New York.

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