Several home building stocks had a strong quarter with the companies surpassing earnings estimates and looking well-positioned for the remainder of the year. Over the last five years, overall revenues for this segment of the market have been on an upward trajectory after having slumped during the 2009 – 2011 timeframe.
Steady jobs, rising wages, a lending environment that provides consumers with a chance to become home owners, consumer confidence and affordability are all some of the factors that have been supporting the recovery. Meanwhile, a low supply level in both new and existing homes has ensured that demand and pricing remain strong. As the economy continues to improve and the millennial generation comes of age, pent-up demand for homes will continue to be released.
Of course, challenges do remain in the form of the proposed new tariff on Canadian soft wood lumber imports, labor constraints, as well as the prospect of rising mortgage rates.
However, the home builders industry is among the top 9% of the 256 Zacks-ranked industries. The Zacks-categorized Building-Residential/Commercial industry has outperformed the broader market (S&P 500) year-to-date (YTD) as well.
So, here is a look at 5 stocks that delivered positive earnings surprises in the first quarter and are witnessing upward revisions in earnings estimates for 2017. All these companies are either Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) stocks — you can see the complete list of today’s Zacks #1 Rank stocks here.
KB Home KBH: Los Angeles, CA-based KB Home is among the largest and most recognized homebuilding companies in the U.S. The company sells and builds new homes designed primarily for first-time, move-up and active adult homebuyers. KB Home’s focus is on first-time buyers, which represents the largest demand segment, and accounted for nearly 60% of the company’s deliveries over the past 10 years. The company reported better-than-expected results for the first quarter of fiscal 2017 — in addition to delivering a positive earnings surprise of 7.14%, KB Homes raised its housing revenue guidance for the year. Gross margins are expected to improve sequentially over the course of the year. A solid backlog and a favorable market environment bode well for this Zacks Rank #1 stock. Earnings estimates for fiscal 2017 are up 3.9% over the last 60 days. Estimated earnings growth for the current year is 43.2%. YTD, KBH has outperformed the Zacks-categorized Building-Residential/Commercial industry with shares gaining 32.3% compared to the industry gain of 20.3%.
Century Communities, Inc. CCS: Greenwood Village, CO-based Century Communities works on the development, designing, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in Colorado, Austin and San Antonio, Texas, Houston, Las Vegas, Nevada, Atlanta, Georgia, North Carolina and Salt Lake City, UT. The upcoming merger with UCP, Inc., slated to close by the end of the third quarter, will provide the combined company with a presence in 10 states and 17 homebuilding markets.
Century Communities has a strong earnings track record having surpassed expectations in each of the last four quarters with an average surprise of 11.23%. 2017 estimates are up 3.3% over the last 30 days. Estimated earnings growth for the current year is 20.5%. The company is a Zacks Rank #2 stock.
Century Communities has outperformed the Zacks-categorized Building-Residential/Commercial industry YTD with shares gaining 22.1%.
Taylor Morrison Home Corporation TMHC: Scottsdale, AZ-based Taylor Morrison caters to a wide array of consumer groups from coast to coast, including first-time, move-up, luxury, and 55 plus buyers. The Zacks Rank #2 stock has surpassed earnings expectations in each of the last four quarters with an average surprise of 9.46%. Estimates are up 1.6% over the last 30 days. Taylor Morrison has a VGM Score of “A”. Our research shows that stocks with a VGM Score of “A” or “B” when combined with a Zacks Rank #1 or #2 offer the best upside potential. Estimated earnings growth for the current year is 11.8%.
Toll Brothers, Inc. TOL: Horsham, PA-based Toll Brothers is focused on the highly fragmented luxury market. The company builds and sells detached and attached homes in luxury residential communities located in affluent suburban markets that cater to move-up, empty-nester, active-adult, age-qualified, and second-home buyers. The company also has a presence in the urban infill markets. Toll Brothers, a Zacks Rank #2 stock, delivered a positive earnings surprise of 20% in the last quarter while fiscal 2017 estimates are up 0.3% over the last 30 days. Estimated earnings growth for fiscal 2017 is 43.9%.
M/I Homes, Inc. MHO: Columbus, OH-based M/I Homes is among the nation’s leading builders of single-family homes. The company has a presence in Columbus and Cincinnati, OH; Indianapolis, IN; Chicago, IL; Minneapolis/St. Paul, MN; Tampa, Sarasota and Orlando, FL; Austin, Dallas/Fort Worth, Houston and San Antonio, TX; Charlotte and Raleigh, NC; and the Virginia and Maryland suburbs of Washington, DC.
The Zacks Rank #1 stock posted a positive earnings surprise of 44.74% in the last quarter while 2017 estimates are up 17.3% over the last 30 days. Estimated earnings growth for 2017 is 36.2%.
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Toll Brothers Inc. (TOL): Free Stock Analysis Report
KB Home (KBH): Free Stock Analysis Report
Century Communities, Inc. (CCS): Free Stock Analysis Report
Taylor Morrison Home Corporation (TMHC): Free Stock Analysis Report
M/I Homes, Inc. (MHO): Free Stock Analysis Report
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May 15, 2017 at 06:36PM
from Arpita Dutt
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