Institutions Put Bottom In KB Homes 

Institutions Put Bottom In KB Homes 

KB Home Raises The Roof In Q4

Shares of KB Home (NYSE: KBH) pulled back from their 13-year high during 2021 but the institutions put a bottom in the action. The institutional activity was robust during the year and netted $253.35 million in sales over the course of 404 transactions. The activity is equal to roughly 6.8% of the market with shares trading near the 442.50 level and we don’t see it ending. Institutions own more than 88.5% of the company and, based on the Q4 results and outlook for next year, that figure could come very close to 100% before it’s all said and done. 

The insiders have not been so bullish on the stock but who can blame them? With shares trading at 13-year highs a very tempting opportunity for profit-taking was at hand. In our view, insider selling does not raise any red flags, however, because sales were small, incremental, broad-based among execs, directors, and large shareholders, and ultimately worth less than 1.0% of the total shares. Insiders still hold about 4.4% of the stock so they do have skin in the game.

KB Home Beats And Raises Guidance In Q4 

KB Home” revenue of $1.68 billion missed the consensus estimate but there is a very big but to go along with that. The revenue missed the consensus but by a very slim 170 basis point margin while growing more than 41% YOY and the gross and operating margins widened as well. The revenue strength was driven by a 28% increase in deliveries coupled with a 9% increase in the average selling price that impacted the bottom-line results as well. 

The company’s gross margin improved to 22.3% while operating income margin widened 310 basis points to 12.8%. This drove GAAP earnings of $1.91 which are up 71% from last year and beat the consensus by $0.15. The best news is that new orders continue to be strong at up 12% in terms of dollar value with a notable double-digit increase in backlogs as well. The backlog increased by 67% YOY to $4.95 billion or enough business to keep the company operating for the next three quarters at Q4 levels. 

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Turning to the guidance it is a little mixed with revenue in the range of $7.2 to $7.6 billion in fiscal 2022. This brackets the consensus of $7.4 billion which is not all that exciting but we see upside risk in the outlook. The demand is very strong so if materials and labor shortages can be mitigated business should easily outperform, especially in the back half of the year. The salient point here, however, is that margin is expected to widen by 300 basis points relative to the Q4 results which should put EPS well above the current consensus. 

The Analysts Are Driving KB Home Higher 

The analysts were already pretty bullish on KB Home and the sentiment is already strengthening in the wake of the Q4 release. Two analysts including RBC and Wedbush upped their price targets with Wedbush setting the new high target of $73. The consensus rose more than $2 because of if and is now $55.67 or 31% above the pre-release closing price. In our view, there will be more upgrades and both figures will end 2022 higher than where they are now. 

Turning to the chart, shares of KB Home are up about 10% in pre-market trading and showing a clear sign of reversal. Price action has been range-bound over the past few quarters but price action is firmly above the top of the range now. Assuming support at the top of the range can hold, we see institutional support pushing this stock back up to the 2021 highs near $55 and then breaking out to new highs. 

Institutions Put Bottom In KB Homes 

Companies in This Article:

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
KB Home (KBH)$33.09+0.3%1.81%4.53Moderate Buy$42.23