Earnings Edge: A Big Week for Homebuilders (KBH & LEN Analysis)

Earnings Edge: A Big Week for Homebuilders (KBH & LEN Analysis)

Last week’s Earnings Edge stocks dropped several percentage points after posting their quarterly results. Remember, we are looking for stocks to make a big move (up or down), so this was right on track.

But the move for each stock has different implications.

For example, Oracle’s 3% drop has its price chart flirting with a downside breakdown. A bigger drop may be ahead.

Meanwhile, JinkoSolar’s 4% decline still has the stock sitting comfortably within its broader wedge pattern. Expect more volatility in this one.

We want to see breakouts. That’s when the next major trends begin to develop.

And today, I break down the homebuilders: Lennar Corp. (NYSE: LEN) and KB Home (NYSE: KBH).

Both stocks are set to make a big move this week, but those expectations can vary widely.

Here’s what to look for…

Homebuilders Stock No. 1: Lennar Corp. (NYSE: LEN)

Earnings Announcement Date: Monday, after the close.

Expectations: Earnings at $3.27 per share. Revenue at $7.2 billion.

Average Analyst Rating: Outperform.

Homebuilding stocks have been hot since the pandemic. The housing market has been on fire. Home prices starting soaring higher last summer, and sales climbed just as fast.

That has started to slow now, with pending home sales declining the last two months.

It’s nothing to get worried about, though. We are simply coming off the hot summer sales season and seeing a brief dip.

A bigger concern is rising prices due to materials like lumber and if that is going to be sustainable for homebuilders like Lennar and KB Home to pass on to hungry buyers.

Investors will be looking for more signs of growth starting today with Lennar’s earnings announcement.

LEN Floats Around Its Key Support Line

Lennar stock chart LEN homebuilders

What I like about this wide ascending triangle pattern for Lennar is that if it holds this key level after earnings — odds are it’s going to shoot higher from here.

And if it breaks, you know right away to expect more weakness.

With the stock trading near the bottom of the channel, there’s not much room for a decline here on the earnings announcement.

And that makes LEN a must-watch this week.

This is a bullish price pattern that will still have plenty of upside even if we see a big move higher on earnings.

Stock No. 2: KB Home (NYSE: KBH)

Earnings Announcement Date: Wednesday, after the close.

Expectations: Earnings at $1.63 per share. Revenue at $1.5 billion.

Average Analyst Rating: Outperform.

The key competitor to Lennar, KB Home, is scheduled to report Wednesday.

Just by looking at the price charts, I can tell you which company is doing better than the other.

It’s Lennar.

I mentioned Lennar had a bullish price chart.

That’s because the stock just peaked a few weeks ago and then tumbled almost 10%. KBH peaked back in May and has plunged 20% since then.

Lennar also had a short-term peak in May but then rallied from there.

That strength is what helped create the bullish price pattern we were looking at. So overall, Lennar is the stronger stock heading into this week.

But don’t count out KBH.

KBH Is Trading in a Tight Range

KB Home stock chart KBH homebuilders

This price chart is pretty solid.

After the drop in May, it found a long-term support level shown in green. As long as that holds after earnings, it’s a pretty bullish sign for the stock.

If that fails to hold up, then KB Home will show more weakness, and we need to play its downside.

Trust me, a breakout on an earnings announcement is usually just the start of a bigger move in the weeks ahead. That’s true for homebuilders as well.

P.S. If you haven’t reserved your spot for my colleague Adam O’Dell’s upcoming Wednesday Windfalls live event, you’re running out of time. During Thursday’s live event, Adam will show you how to target a triple-digit winner, each and every Wednesday. Click here to sign up now.


Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit ProfitsAutomatic 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 True Options Masters.

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