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Will KB Home (KBH) Disappoint this Earnings Season? - Analyst Blog

Zacks Equity Research
Updated

KB Home (KBH) is set to report fourth-quarter fiscal 2014 results on Jan 13, before the market opens. Last quarter, it posted a negative surprise of 26.32%. Let’s see how things are shaping up for this announcement.

Factors to Consider this Quarter

KB Home expects to deliver between 2,200 and 2,400 homes in fourth quarter 2014. The company expects double-digit increase in average selling price in the fourth quarter.

KB Home intends to deliver 7,200 to 7,400 homes in fiscal 2014. The company expects community count to increase 15% in the year. The company expects gross margins to meet the target of 20% in 2014.

Though KB Home continued to witness increase in pricing due to shift in mix toward higher priced homes, the homebuilding company has been witnessing lower home deliveries in the last few quarters.

Meanwhile, though order trends are positive year over year, they have declined sequentially by a wide margin, a trend which may continue in the upcoming quarters. All these headwinds are expected to drag down earnings and revenues.

Earnings Whisper?

Our proven model does not conclusively show that KB Home is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP  and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP:  The Earnings ESP for KB Home is 0.00%, as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 52 cents.

Zacks Rank #4 (Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies in the building/materials sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

PulteGroup, Inc. (PHM) with an Earnings ESP of +2.44% and a Zacks Rank #2 (Buy).

Armstrong World Industries, Inc. (AWI) with an Earnings ESP of +10.71% and a Zacks Rank #2.

Owens Corning (OC) with an Earnings ESP of +2.38% and a Zacks Rank #3 (Hold).
 


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OWENS CORNING (OC): Free Stock Analysis Report
 
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Zacks Investment Research