A Home-Buying Bump? Watch KB Homes, RH Earnings

A Home-Buying Bump? Watch KB Homes, RH Earnings

With home prices heating up, shoppers are changing up where they leave at the fastest rate on record.

The housing market is booming after a pandemic as people realized it matters where they lived. With lockdowns varying from state to state, apartment and condo living felt a lot different in some areas. And owning a house with a pool and large plots of land was a huge plus.

My family and I enjoyed our staycation that lasted for months during the pandemic.

We still were able to work, thank God. But we also took lunch breaks to ride bikes with our kids, swim in the pool or throw a football in the backyard.

It was a difficult time, but we made the most of it.

And millions of Americans used the pandemic to give them a push to pull the trigger on their dream homes as well.

Home sales, existing and new, surged since March 2020, marking the biggest increases on record. Sales didn’t hit all-time highs — the bubble in the mid-2000s still claims that honor — but we are closing in fast.

With sales for homes skyrocketing through 2020 into this year, we are at the highest level in nearly 15 years.

As a result, home building stocks have surged. Furniture companies have benefited as well.

And this week, we can see how both industries, home builders and furniture companies, are weathering the rush of demand.

We’ll break down what you can expect from earnings reports on popular homebuilder KB Home (NYSE: KBH) and premium furniture manufacturer RH (NYSE: RH).

Here’s what to watch in this week’s Earnings Edge

Home Buying Spree Beneficiaries: KBH and RH

Earnings Edge Stock No. 1: KB Home (NYSE: KBH)

Earnings Announcement Date: March 24, after the close.

Expectations: Earnings at $0.94 per share. Revenue at $1.2 billion.

Average Analyst Rating: Outperform.

KB Home, one of the largest homebuilders in the U.S., has benefited from rising demand. Its last earnings report in January topped analyst estimates on earnings and revenues. Now they are looking to do it again, but this time, in the tough winter months of December, January and February. Those three months slow down due to weather-related issues. With rising interest rates for home loans and winter weather, KB Home is facing several headwinds in this earnings report.

And investors aren’t ready for it.

Since its last earnings report, the stock has added 30% in gains. Clearly, the expectations are for more good news. But with a challenging quarter for the home builder, it is in a position to disappoint.

KB Homes Is Trending Higher

KB homes stock chart

Shares are trading in a rising wedge pattern, with a rising support line (in green) and rising resistance line (in red) that are narrowing in on each other.

With the stock sitting in the middle of this wedge, I’m not looking for a breakout this week. Shares can continue to bounce around for a few more weeks, trending slightly higher. But investors would need to see some good news and positive commentary out of this earnings report.

Something about rates not impacting demand and more sales under contract will give the stock the boost it needs to carry this rally higher.

Earnings Edge Stock No. 2: RH (NYSE: RH)

Earnings Announcement Date: March 24, after the close.

Expectations: Earnings at $4.90 per share. Revenue at $797 million.

Average Analyst Rating: Outperform.

RH (formerly Restoration Hardware), a premium retailer in the home furnishing market, will report fourth-quarter earnings on Wednesday. And it has thrived as consumers rush to upgrade their lifestyle at home. It goes hand-and-hand with new home sales going through the roof. With more homes being purchased, more people are looking for new furniture. And RH is as good as it gets.

That’s exactly why it’s my wife’s favorite furniture store (she has expensive taste). We were just up there over the weekend, in fact. Not to buy more furniture, but for the food. The location in West Palm Beach serves one of the best burgers I’ve ever had. I highly recommend checking it out if you live in the area.

But that’s not why we are talking about them today.

With earnings this week, the stock is on everyone’s radar. In its last earnings report at the end of 2020, RH posted record results for the third quarter. That momentum looked set to continue through the holiday season as at-home demand stayed strong.

I was bullish on the stock before I saw what Nike reported last week — congestion at U.S. ports.

Most of RH’s items come from other countries and have to travel through these ports. Many furniture stores are delaying shipments or stopping orders altogether.

It’s a mess.

And when it comes to furnishing that new home, nothing is better than same-day delivery or at least within a week. When you tell someone they have to wait two to three months for their couch to arrive in the states … now you have people canceling orders left and right.

This could be a wild quarter for the company as it gives us a report on how the delays are impacting its bottom line.

Here’s how investors are handling that concern — the stock is trending sideways.

RH Has Flattened Out

RH stock chart

RH’s price chart has formed an ascending triangle pattern, which has a downward sloping resistance line (in red) and horizontal support line (in green).

Typically, this is a bullish chart formation. It’s healthy to see the rally pause after a 450% rally from the March 2020 lows, but there are headwinds when it comes to delays at the ports.

I think both of our companies today are in for a challenging quarter when they report earnings. And it doesn’t seem like investors are anticipating any challenges. These companies can still surprise us with a bullish outlook even if the quarter is weak, but I wouldn’t be excited about either of these stocks at the moment.

Instead, let’s see what they say in their earnings reports.

I know many traders like to gamble on the actual earnings announcement, but by simply waiting to see the results, we get a better grasp about where the stock is headed over the next five to ten weeks — and that’s our opportunity to profit.

It is part of my number one options strategy, tracking companies after they report earnings. Click here to learn how this is even more profitable than gambling on the earnings report.

Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit Profits, Automatic Profits Alert and Pure Income. His content is frequently published on Investopedia and Seeking Alpha. Check out his YouTube Channel to see his latest market insights.

Click here to join his free newsletter, Weekly Options Corner.

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