KB Home (KBH) is one of the only major homebuilders to outperform the S&P 500 so far in 2016, with most others down some 1% to 12% in the year-to-date period. But I think KBH can go even higher from here given America's current environment of low mortgage rates, pretty decent job growth and improving new-home demand.
KB last week reported fiscal-first-quarter earnings of $0.14 per share, beating analysts' consensus by three cents. Revenues also rose 16.9% to $678.4 million vs. the $639 million that analysts had expected.
Additionally, the firm said it delivered 1,953 homes during the quarter -- a 23% gain from a year earlier. Average selling prices also jumped 5% to $344,400, while gross profit margin rose 20 basis points to 16%. Net orders likewise increased 9% to $824.7 million (or 2,272), while backlog grew 29% to $1.43 billion.
Another plus was the fact that management reiterated its fiscal 2016 outlook during a post-earnings conference call with analysts. Executives forecast $3.35 billion to $3.65 billion in revenue, as well as a 17% homebuilding margin and a 4% average price increase. Assuming a 37% tax rate, earnings should come in at about $1.17 per share for the current fiscal year and $1.38 a share in the next one.
Add it all up and I think KB Home's share price still has some room to run. If the firm gets a solid start to the spring home-selling season, I think the stock can keep up the momentum through the summer.
KBH currently trades at about $13.90, or roughly 10x next year's $1.38-a-share earnings estimate. But homebuilders historically trade at between 5x and 15x forward earnings, so I don't see why KBH's multiple can't rise.
In fact, I think the stock could easily trade as high as 15x next year's $1.38 EPS estimate, which would take KBH to about $20 a share by this time next year.
(To see Jim Cramer's take on KB Home, click here.)