KB Home Results Show Housing Sector Is Still Strong (KBH, TOL)

Includes: KBH, TOL
by: ClearFish Research

KB Home (KBH) reported Q1 2006 results today, and they were stellar. Q/Q stockholder equity increased 2%. Y/Y operating revenue increased 34% ($2.187B/$1.628B), operating income increased 40% ($274M/$195M), and net income increased 42% ($174M/$123M). Quarterly Y/Y EPS increased 43% ($2.02/$1.41), showing a small effect from their share buyback program. That gives them a pretty much flat OP margin of 12% ($196M/$1628M vs. $274M/$2187M).

Q1 is often the worst in the housing sector. Annualizing their results forward gives annual operating earnings of $8.08 ($2.02x4 - they are projecting $11.25), which at a current share price of about $65, gives them a conservative forward P/E of 8. Doing the same for Toll Brothers Inc. (TOL) gives them a forward P/E of 8 also ($0.98x4, and a current price around $33).

Here's a summary for the Y/Y Q1 quarterly growth for the two:

Boy, I wish all sectors that were falling apart were falling apart that well. Top line growth of about 30%, and bottom line growth of ca. 45%, with a P/E of 8 is a screaming buy, and that's just what we're likely to be doing. Unfounded rumors of a housing implosion have created some nice entry points.

KBH and TOL 1-yr. charts: