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Why KB Home Stock Popped 12.5% Thursday

By Rich Smith – Jan 13, 2022 at 10:46AM

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Housing boomed in 2021 -- and will continue to boom in 2022.

What happened

Enthusiasm for KB Home (KBH -0.90%) stock is building this morning, with shares of the homebuilder up 12.5% as of 10:10 a.m. ET in response to an earnings beat last night.

Heading into the fourth quarter of 2021, analysts had forecast that KB Home would earn $1.76 per share on sales of just over $1.7 billion. As it turned out, KB beat easily on the bottom line, earning $1.91 per share, despite missing slightly on sales, which came in just below $1.7 billion.  

Construction workers examine blueprints in front of a house under construction.

Image source: Getty Images.

So what

Despite missing estimates, sales for KB Home's final quarter of the year surged 40% year over year on a 28% increase in homes "delivered." The difference between the two numbers implies that the prices KB was getting for its houses increased -- and indeed, management confirmed that the average selling price of its home grew 9% year over year, to $451,100.

The higher prices translated into a higher profit margin as well, with operating profit margin up 310 basis points to 12.8%. Earnings surged 71% year over year.

Now what

And the good news probably won't end there.

"We delivered outstanding growth in revenues and margins in our 2021 fourth quarter," commented CEO Jeffrey Mezger, and also "significantly expanded our production capabilities as we scale our business to meet the healthy demand." KB Home advised that the value of its backlog of homes ordered but not yet built and delivered -- a foreshadowing of revenue to come -- grew 67% in Q4. Translation: Sales that grew fast in Q4 could grow even faster in the quarters to come.

Confirming this, management gave new guidance for fiscal 2022, predicting that it will sell even more houses, at even higher prices -- $480,000 to $490,000 on average -- this year, and collect revenue between $7.2 billion and $7.6 billion. At the midpoint, that would make for a 30% increase in sales.

Management did not give a specific number for earnings guidance, but with sales on the rise, and operating profit margin continuing to rise as well -- as high as 16.5% -- 2022 looks like it will be another great year to own KB Home stock.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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