KB Home Slumps on Guidance Cut, Drags Down Other Home Builders

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November 16, 2018 1:06pm NYSE:ITB

Housing Sector

From Zacks: Shares of KB Home KBH decreased 15.3% yesterday, after the company trimmed its guidance for fourth-quarter fiscal 2018. It also underperformed the industry in a year’s time.  The stock has lost 38.8% compared with the industry‘s 32.7% decline.

For fourth-quarter fiscal 2018, the company expects revenues to be between $1.31 billion and $1.34 billion, down from the prior estimate of $1.39 billion and $1.45 billion. This downside can be attributed to decrease in deliveries in Texas, lower-than-expected spec sales and potential delayed closings in California due to wildfires.

Moreover, rising labor costs might mar KB Home’s growth prospective as it limits home builders’ pricing power. Also, land prices are increasing owing to limited availability. The recently imposed tariff on imported steel and aluminum is an added concern.

Further, the Zacks Rank #3 (Hold) company expects average selling price (ASP) to be in the range of $395,000-$400,000 compared with $400,000-$405,000. Homebuilding operating margin (excluding the impact of any inventory-related charges) is anticipated to be 9.3-9.5%.

These apart, KB Home issued guidance for fiscal 2019. It expects revenues to be in the range of $4.7-$5.2 billion. The Zacks Consensus Estimate is pegged at $5.01 billion. Average selling price is projected to be between $390,000 and $400,000.

Domino Effect

The stock market runs on sentiment. Any unforeseen event in a particular sector has a ripple effect on others with a clear reflection on major indices. The case is more or less the same for specific sectors that often witness good or bad performance by one player influencing the performance of others. While major indices — Dow Jones Industrial Average, Nasdaq and S&P 500 ended the trading session on a positive note, the SPDR S&P Homebuilders ETF (XHB) fell 0.9%.

Stocks such as Lennar Corporation LEN, Toll Brothers, Inc. TOL and D.R. Horton, Inc. DHI, which belong to the same industry, also declined 5%, 5.9% and 2.6%, respectively.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The iShares U.S. Home Construction ETF (ITB) was trading at $30.96 per share on Friday afternoon, up $0.52 (+1.71%). Year-to-date, ITB has declined -29.10%, versus a 3.05% rise in the benchmark S&P 500 index during the same period.

ITB currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #27 of 33 ETFs in the Industrials Equities ETFs category.

This article is brought to you courtesy of Zacks.

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