What happened
Shares of KB Home (KBH 2.73%) were climbing today after the company reported better-than-expected results in its fourth-quarter earnings report last night. As a result, the stock was up 4.5% as of 11:34 a.m. EST after gaining as much as 10.6% earlier in the session.
So what
KB Home, one of the nation's largest homebuilders, reported revenue down sharply, due to constraints from the coronavirus pandemic, but strong growth in demand and its order backlog. Revenue in the quarter fell 23% to $1.19 billion, a reflection of a dip in orders and supply chain challenges during the early months of the pandemic, but that still topped expectations at $1.14 billion. Homes delivered in the period fell 26.8% to 2,876, but the average selling price rose 5% to $413,700.
Image source: Getty Images.
However, the real bright spots came on the demand side, which portends strong future revenue growth. Net orders rose 42%, net-order value increased 50% in the period, and the company's order backlog jumped 63% to $3 billion. Adjusted gross profit margin rose from 23.1% to 24%, in part from the increase in prices, and adjusted earnings per share in the period slipped from $1.31 to $1.12, beating estimates of $0.93 per share.
CEO Jeffrey Metzger said, "Housing market conditions continue to be robust, as the pandemic has helped propel demand for homeownership, accentuating all the financial, health, safety and emotional benefits it offers. This fundamental shift has long been anticipated -- with pent-up demographic forces, a housing supply shortage, and favorable mortgage interest rates -- and COVID-19 has accelerated these dynamics."
Now what
As Metzger said, there are a number of tailwinds that should make 2021 a strong year for homebuilders like KB, especially as the pandemic has shown no signs of abating, even as vaccines are rolling out. In its outlook, the company said it expected to achieve significant growth in its scale and profits in 2021, even as it noted an earlier decline in land acquisition that could impact growth in the first half of the year.
Nonetheless, the business looks poised for a strong 2021, and the stock is cheap, trading at a price-to-earnings ratio of just eight, based on this year's expected earnings. This gives it an appealing combination of value and growth.
