Los Angeles-based builder KB Home (NYSE: KBH) is scheduled to report its fiscal fourth-quarter earnings this Friday, Jan. 9, before the market opens. Analysts are expecting KBH to swallow a loss of $1.19 per share, which would represent a marked improvement from the homebuilder's year-ago loss of $9.99 per share.
However, if history is any indication, there's a good chance KB Home's results will fall short of the Street's predictions. The company has disappointed analysts in each of the previous five quarters by reporting wider-than-expected losses.
On the plus side, it doesn't seem that many players on Wall Street are betting on an upside surprise. During the past 10 days, traders on the International Securities Exchange (ISE) have bought to open nearly 3 times more puts than calls on KBH. The stock's 10-day ISE put/call ratio of 2.78 ranks higher than 65% of comparable readings taken in the past year, which suggests that bearish sentiment is ramping up ahead of earnings.
Likewise, analysts are almost unanimously skeptical of the shares. Zacks reports six Hold ratings, compared to a lone Strong Buy recommendation. This lopsided configuration suggests that these brokerage firms won't be too shocked by a wider-than-expected quarterly loss, which could provide something of a buffer against potential downgrades.
As for short sellers, these bearish players have sold short a whopping 20% of the equity's available float. This accumulation of sideline cash could fuel the stock higher in the event of a positive earnings surprise -- or, it could simply help KBH to limit its losses, if a post-earnings plunge prompts some of these investors to take profits.
While the heavy bearish sentiment should translate to limited downside, the potential for upside is similarly slim; resistance from the security's 20-week moving average looms just overhead in the 16 region. In short, it looks like KB Home should hold steady on the charts after earnings, since expectations on the Street are so unanimously low. Barring any major positive developments, look for any post-report moves to be muted.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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Reader Comments (Page 1 of 1)
1-07-2009 @ 4:43PM
widollar said...
Americans want Obama to fix everything, but are unwilling to pay for fixing what the Bush regime has badly broken. They are spoiled and this great recession and soon to be depression will shake their very foundations. Only the very wealthy will weather the financial storm and the rest of us will suffer greatly.