KB Home (KBH) Stock Rising as Home Builders Rally

NEW YORK (TheStreet) -- Shares of KB Home (KBH) are higher by 2.2% to $17.04 in mid-morning trading on Wednesday as home builders get a boost from Lennar Corp.'s (LEN) strong earnings results, which were released this morning.

For the 2015 second quarter Lennar said it earned 79 cents per diluted share on revenue of $2.4 billion. Analysts polled by Thomson Reuters had forecast for earnings of 64 cents per share on 2.02 billion in revenue.

KB Home is a Los Angeles, CA.-based company that operates by constructing and selling homes.

Other home builder stocks gaining today include Hovnanian Enterprises (HOV), up by 2.76% to $2.80, M.D.C Holdings (MCD), gaining by 1.35% to $30.79, and D.R. Horton (DHI), rising by 1.52% to $28.03 this morning.

Separately, TheStreet Ratings team rates KB HOME as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate KB HOME (KBH) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity and reasonable valuation levels. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • KBH's revenue growth has slightly outpaced the industry average of 7.7%. Since the same quarter one year prior, revenues rose by 10.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Household Durables industry and the overall market, KB HOME's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • KB HOME has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, KB HOME increased its bottom line by earning $9.03 versus $0.41 in the prior year. For the next year, the market is expecting a contraction of 90.0% in earnings ($0.91 versus $9.03).
  • The share price of KB HOME has not done very well: it is down 5.92% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • You can view the full analysis from the report here: KBH Ratings Report

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