KB Home Beats Orders Estimate on Housing Rally’s Strength

(Bloomberg) -- KB Home reported stronger-than-expected quarterly orders as buyers rushed to take advantage of historically low mortgage rates. The shares rose the most in more than seven months.

• For the three months through November, signed purchase contracts rose 42% from a year earlier to 3,937, the Los Angeles-based company said in a statement Tuesday. The average estimate of analysts surveyed by Bloomberg was 3,401.

Key Insights

• The order total was the highest for the company’s fiscal fourth quarter since 2005. The value of orders increased in all of the company’s four regions, led by the Southeast, with a 69% jump. The gross margin in the quarter was 21% -- a level that Chief Executive Officer Jeffrey Mezger said should be sustainable throughout the year.
• The pandemic rally, driven by low mortgage rates, is lifting markets that were previously showing some weakness, including California, where KB Home has a heavy focus.
• KB Home, which already had plenty of offerings for first-time buyers, has been pushing further in that direction. That gives the company an edge in a market where entry-level buyers are increasingly getting priced out of homeownership. The nationwide inventory of existing homes fell to the lowest level on record in November.
• The company’s build-to-order model has enabled it to respond directly to customers’ needs. Some buyers during the pandemic have favored personalized houses with offices and other stay-at-home amenities.

Market Reaction

• The shares were up 7.5% to $36.70 at 9:44 a.m. New York time Wednesday, the best performance in an S&P index of homebuilder stocks. They earlier climbed as much as 11%, the biggest intraday gain since late May. Through Tuesday’s close, KB Home shares had fallen 4.8% in the past 12 months.

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• Click here to read the earnings statement.

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