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($$$MR. MARKET$$$ is a proprietary investor and does not provide individual financial advice. The stocks mentioned on this forum do not represent individual buy or sell recommendations and should not be viewed as such. Individual investors should consider speaking with a professional investment adviser before making any investment decisions.)
Double income…no kids. Still no house. Why? Because there aren’t enough houses. But guess what? The housing market is finally back on its horse. The recent decision by the Fed to keep interest rates steady is a positive signal for the homebuilding sector. Inflation is easing and the economy and unemployment numbers are still blinking green. Fed officials project a gradual decline in core inflation over the next few years. As a result, the money men expect at least three rate cuts in 2024, with four more cuts in 2025. Further reductions in 2026 will take the fed funds rate back down to 2%. This will be steroids for the housing sector and the home builders.
The large public homebuilders are building spec houses, even in the absence of a confirmed buyer, demonstrating their confidence. They want to be well-prepared with inventory when a potential drop in rates coincides with the spring selling season, showcasing strategic foresight amid market fluctuations.
Today I bought KB Home (KBH) at 60.81. I will sell it in 4 to 6 weeks at 70.24. Here’s why I like KBH. Look at the chart!:
This stock is up 90% in the last year, yet its PE is only 7.9. Even without the macroeconomic tailwinds, this stock is an incredible buy.
KB Home engages in selling and building a variety of new homes. It builds various types of homes, including attached and detached single-family homes, townhomes, and condominiums. The firm operates through the following segments: West Coast, Southwest, Central, and Southeast. It offers homes in development communities, at urban in-fill locations and as part of mixed-use projects. KB Home is one of the largest and most recognized homebuilders in the United States, operating in 47 markets from coast to coast, and building over 670,000 quality homes in our more than 65-year history.
The company’s focus on increasing community count should contribute to the company’s sales in the medium to long term. The long-term housing fundamentals are going to be juiced because of a decade-plus underproduction of new homes. The company’s margins are expected to benefit from healthy levels of pricing in new orders, cost reductions, and productivity improvements. KBH reported steady customer demand for new homes in the third quarter. The net orders grew 52% Y/Y to 3,097 units in the third quarter, reflecting improved demand conditions.
The company has invested a good deal in land acquisitions in recent quarters and has over 57,000 lots owned or under contract that should support its plans of more than 150 new community openings over the next five quarters. The increased community counts mean more orders and should help the company’s growth in the long run. The strength in pricing of the new orders that the company is booking bodes well for the company’s margins in the coming periods.
The KBH price to book ratio is well below the industry average for homebuilders, that’s why KBH looks to be the best investment in the lot. Plus it pays a dividend. Who doesn’t like free money? ANAL-ysts project that the company is expected to post an EPS of $1.68 in Q4 2023 and $7.31 in FY24. With the help of an improved macroeconomic environment, the PE should expand from 7.9 to 10. If you take the PE of 10 and multiply it by EPS of $7.31, that takes the stock price to $73.10 which is well past my target sell price. KB Home announced that it will release earnings for its fourth quarter and fiscal year ended November 30, 2023 after the market closes on Wednesday, January 10, 2024. Hold onto your jocks because this stock rocks.
Last quarter showed that things are going in the right direction. “We are pleased to report strong financial results for our third quarter, which exceeded our guidance ranges, driven in part by achieving higher deliveries, as we further compressed build times. We generated revenues of approximately $1.6 billion and, together with an operating margin of 11.3%, produced diluted earnings per share of $1.80. While our year-over-year comparisons reflect the record results we achieved in the prior-year quarter, we expect this quarter’s solid performance to contribute to a more profitable 2023 fiscal year than we had previously anticipated,” said Jeffrey Mezger, Chairman, President and Chief Executive Officer.
“Demand was steady throughout the quarter, leading to a community absorption pace of 4.3 net orders per month, even though mortgage interest rates rose as the quarter progressed. With the choice, flexibility and affordability that our Built to Order model offers to our buyers, we believe we are well positioned to navigate the potential for shifting housing market conditions.”
“We have begun to increase our investment in land acquisition in support of our commitment to grow our community count in 2024 and beyond. Even with this higher investment, the level of operating cash flow we are generating enables us to both reinvest in our business and repurchase our common stock, and we expect to continue allocating our capital primarily in these two areas,” concluded Mezger.
Once these houses get built, they will be promptly snapped up and KBH earnings are going to grow and grow, taking the stock price with it. All aboard!
www.mrmarketishuge.com
Double income…no kids. Still no house. Why? Because there aren’t enough houses. But guess what? The housing market is finally back on its horse. The recent decision by the Fed to keep interest rates steady is a positive signal for the homebuilding sector. Inflation is easing and the economy and unemployment numbers are still blinking green. Fed officials project a gradual decline in core inflation over the next few years. As a result, the money men expect at least three rate cuts in 2024, with four more cuts in 2025. Further reductions in 2026 will take the fed funds rate back down to 2%. This will be steroids for the housing sector and the home builders.
The large public homebuilders are building spec houses, even in the absence of a confirmed buyer, demonstrating their confidence. They want to be well-prepared with inventory when a potential drop in rates coincides with the spring selling season, showcasing strategic foresight amid market fluctuations.
Today I bought KB Home (KBH) at 60.81. I will sell it in 4 to 6 weeks at 70.24. Here’s why I like KBH. Look at the chart!:
This stock is up 90% in the last year, yet its PE is only 7.9. Even without the macroeconomic tailwinds, this stock is an incredible buy.
KB Home engages in selling and building a variety of new homes. It builds various types of homes, including attached and detached single-family homes, townhomes, and condominiums. The firm operates through the following segments: West Coast, Southwest, Central, and Southeast. It offers homes in development communities, at urban in-fill locations and as part of mixed-use projects. KB Home is one of the largest and most recognized homebuilders in the United States, operating in 47 markets from coast to coast, and building over 670,000 quality homes in our more than 65-year history.
The company’s focus on increasing community count should contribute to the company’s sales in the medium to long term. The long-term housing fundamentals are going to be juiced because of a decade-plus underproduction of new homes. The company’s margins are expected to benefit from healthy levels of pricing in new orders, cost reductions, and productivity improvements. KBH reported steady customer demand for new homes in the third quarter. The net orders grew 52% Y/Y to 3,097 units in the third quarter, reflecting improved demand conditions.
The company has invested a good deal in land acquisitions in recent quarters and has over 57,000 lots owned or under contract that should support its plans of more than 150 new community openings over the next five quarters. The increased community counts mean more orders and should help the company’s growth in the long run. The strength in pricing of the new orders that the company is booking bodes well for the company’s margins in the coming periods.
The KBH price to book ratio is well below the industry average for homebuilders, that’s why KBH looks to be the best investment in the lot. Plus it pays a dividend. Who doesn’t like free money? ANAL-ysts project that the company is expected to post an EPS of $1.68 in Q4 2023 and $7.31 in FY24. With the help of an improved macroeconomic environment, the PE should expand from 7.9 to 10. If you take the PE of 10 and multiply it by EPS of $7.31, that takes the stock price to $73.10 which is well past my target sell price. KB Home announced that it will release earnings for its fourth quarter and fiscal year ended November 30, 2023 after the market closes on Wednesday, January 10, 2024. Hold onto your jocks because this stock rocks.
Last quarter showed that things are going in the right direction. “We are pleased to report strong financial results for our third quarter, which exceeded our guidance ranges, driven in part by achieving higher deliveries, as we further compressed build times. We generated revenues of approximately $1.6 billion and, together with an operating margin of 11.3%, produced diluted earnings per share of $1.80. While our year-over-year comparisons reflect the record results we achieved in the prior-year quarter, we expect this quarter’s solid performance to contribute to a more profitable 2023 fiscal year than we had previously anticipated,” said Jeffrey Mezger, Chairman, President and Chief Executive Officer.
“Demand was steady throughout the quarter, leading to a community absorption pace of 4.3 net orders per month, even though mortgage interest rates rose as the quarter progressed. With the choice, flexibility and affordability that our Built to Order model offers to our buyers, we believe we are well positioned to navigate the potential for shifting housing market conditions.”
“We have begun to increase our investment in land acquisition in support of our commitment to grow our community count in 2024 and beyond. Even with this higher investment, the level of operating cash flow we are generating enables us to both reinvest in our business and repurchase our common stock, and we expect to continue allocating our capital primarily in these two areas,” concluded Mezger.
Once these houses get built, they will be promptly snapped up and KBH earnings are going to grow and grow, taking the stock price with it. All aboard!
www.mrmarketishuge.com
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