KB Homes Gives Investors Another Reason To Buy Homebuilders

| About: KB Home (KBH)

KB Homes (NYSE:KBH) traded down 6% following Thursday morning's earnings release, giving investors another opportunity to add to their position.

The homebuilders have been among the year's best performers as investors have begrudgingly embraced the basket amid 8 consecutive months of improving homebuilder confidence. Earlier this week, the National Association of Home Builders reported its confidence index climbed to over a six year high of 47.

At KB Homes, the company's backlog climbed 35% in FYQ4 as sales increased 20% to $578 million. The company cited not only higher unit sales, but rising average prices too.

Over 2,100 homes, sold at prices 14% higher than a year ago, were sold to KB customers last quarter. The momentum accelerated quarter-over-quarter too, with sales prices rising 10% from FYQ3.

Operating income from home building increased by 2.5% to 2.7% in the quarter, reflecting higher unit and pricing, leveraged against a tight grip on costs. Selling, general and administrative costs fell 4.4% to 11.4% year-over-year.

For the full year, the company delivered 8% more homes than FY2011 and saw revenue climb 19% as selling prices gained 10%.

For those expecting double dip recession would drag home sales back to former lows, the trend hasn't materialized. Instead, industry wide new home sales have moved markedly higher this year.

Even including a 5.2% drop in Northeast homebuilding tied to Hurricane Sandy, the industry still saw housing starts jump 21.6% from last year during October. And, the less volatile housing permit number climbed 26.8% in November to its highest reading since mid 2008.

As long as inventory remains tight, pricing will benefit K B and its peers Pulte Homes (NYSE:PHM) and D R Horton (NYSE:DHI). Supply fell to 4.8 months in October, down from 6.1 months a year ago.

As outlined here and here, railcar volume also supports investors increasing their exposure to the group into 2013. Year-to-date, the amount of lumber and wood products shipped by railcars is 12.9% above 2011.

For investors considering KB Homes and the broader homebuilders (NYSEARCA:XHB), using short term volatility created by day traders to increase their positions has been a wise bet. Given data remains strong, it would seem the strategy will continue to reward shareholders heading into their seasonally strongest period for excess return.

According to data from the seasonal investor, the homebuilder ETF has posted its strongest returns relative to the S&P 500 during the period from December through April.

Source: Seasonal Investor

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in XHB over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.