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KB Homes Revenue Miss Could Be Your Chance To Buy

Friday, January 10, 2020 | Thomas Hughes
KB Homes Revenue Miss Could Be Your Chance To Buy

KB Homes Misses Overeager Estimates

KB Homes (KBH) certainly disappointed the market today. With the housing data so robust and Lennar’s (LEN) results to foreshadow the release KB Homes was not expected to fall shy of consensus. Lennar beat on the top and bottom lines, provided a positive outlook for cash-flow growth, and raised its dividend 212%, surely the best-in-breed KB Homes can do the same?

But perhaps that was the problem to begin with, the consensus estimate. Maybe it was too high. With the housing data so robust the average analyst rating for housing turned to a buy over the past quarter and with it came a number of upgrades for KB Homes. If it has happened once it has happened a thousand times, the market got ahead of itself and now the stock's price is readjusting to reality.

KB Homes Delivered A Good Report

The actual results were not bad, not bad at all. Certainly not bad enough for shares to be trading -3.5%. Revenue missed consensus by 2.5% but still posted a whopping 15.6% increase over last year. EPS didn’t miss, GAAP EPS of $1.31 came in $0.02 above consensus proving the companies ability to make money.

The EPS result was driven in large part by an increase in margins. Gross margins improved 120 basis points from the previous year due to a reduction in interest amortization. Because the company is able to generate free-cash-flow, and cash flow is improving, we can expect management to continue improving the balance sheet and driving earnings this year.

CEO Jeffrey Mezger

“With the conclusion of the third year of this Plan, our 2019 results reflect incredibly strong progress relative to 2016 when we launched the Plan and set the stage for the new year. We have begun 2020 on sound footing, with a 26% year-over-year increase in our backlog value to $1.8 billion, and the composition of both our backlog and community portfolio reflecting higher margins. As such, we believe we are well-positioned to further expand our profitability this year and meaningfully grow our return on equity.”

Prices Are Down But Traffic Is Up

The average selling price per home is down from last year but the volume of sales and growing backlog make up the difference. The total number of new orders grew 38% from last year and, based on the home builders sentiment data, the pace of traffic is not expected to slow in 2020. The pace of new home sales growth is expected to top 11% in 2020 and those estimates may be low. Pent up demand and lower prices have unlocked a wave of activity that may not soon be assuaged.

The decline in the average sales price is likely due to the sales mix. KB reports successfully raising prices in 65% of its communities which makes the decline in average sales price less a problem than it might seem. The value of backlogged orders grew at a faster rate than the number of orders, evidence of those higher prices, and points to an increase in average sales price later in the year.

Regarding the data, the Building Permits is the most robust. Building permits are a leading indicator of the housing market and up more than 15% from the low set earlier this year. At 918,000 annualized units, permits are sitting at a multi-year high and suggest a surge in home building is coming this spring.

The Technical Outlook: A Buying Opportunity Is At Hand

Shares of KB Homes gave up more than -3.5% in today’s session but the deepest losses were recovered. The stock fell to find support at the $35 level and above the 30-day EMA. At this level price action appears to be well-supported and the indicators are bullish if in retreat. Price action may continue to test support in the near-term, a move back to or even below the EMA is not unlikely, so caution is recommended when considering new entries.

6 Gambling Stocks Ready For a Rebound

If you didn’t believe that gambling stocks are a worthwhile investment, consider this. The Business Research Company projects the global gambling market to reach $565.4 billion through 2022. That assumes that the industry will continue growing at is annual rate of 5.9%.

The gambling industry is composed of many segments. There are casinos, lotteries, and the now legalized segment of sports betting. But gambling is also broken down into offline gambling, online gambling and even virtual reality gambling. In fact, virtual reality gambling is projected to grow at an annual rate of 21.5% until 2022.

But virtual reality is only one of a number of emerging technologies that are changing the “traditional” face of the gambling industry. There are now hybrid games – the combination of online and land-based games and even augmented reality games. And don’t forget about fantasy sports. Fantasy sports has created an entire industry and it wasn’t created for one person to have bragging rights over their buddies. Fantasy sports is a multi-million industry.

But like many other segments of the economy, gambling stocks were hit hard by the Covid-19 pandemic. Not only were casinos closed, but live sports were also put on hold. This dried up many of the traditional avenues of gambling, and gambling stocks sank lower as a result.

However, the global economy is starting to re-open. And while it was thought that casinos would be one of the last to come back, there are casinos that are starting to re-open. And, it’s becoming more and more likely that there will be live sports (likely without fans initially) sooner rather than later. And that will open up the fantasy sports market.

These stocks tend to move quickly. So now is the time to take action. That’s why we’ve created this special presentation that highlights 6 gambling stocks that are ready for a rebound. The sell-off was real, but so will the comeback. And when it does, these stocks may cost much more than they do now.

View the "6 Gambling Stocks Ready For a Rebound".

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