Which Home Building Stocks Have the Strongest Earnings Trends?

Earnings trends are extremely important when evaluating stocks. At Wall St. Cheat Sheet, we view increasing earnings quarter-over-quarter as a simple way to gauge whether costs and the business model are stable. Then we like to analyze whether the company is outperforming peers in the sector. This is what we call the “E-Squared” investment analysis (‘E = Earnings Are Increasing Quarter-Over-Quarter’ + ‘E = Excellent Relative Performance Versus Peers and Sector’).

Here’s your Cheat Sheet to how the top 5 Home Builders’ Stocks rank via earnings trends:

5) KB Home (NYSE:KBH): Current Price $

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 3,034 1,825 1,590 1,316 1,560
Diluted EPS ($) -12.59 -1.33 -0.90 -2.32 -0.76

While the other builders appear to have wiped the red ink from their income statements, KB Home is still losing money.

Quarter Nov. 30, 2011 Feb. 29, 2012 May. 31, 2012 Aug. 31, 2012 Nov. 30, 2012
Revenue ($) in millions 479.87 254.56 302.85 424.50 578.20
Diluted EPS ($) 0.19 -0.59 -0.31 0.04 0.10

For the last three quarters KB Home has been growing its EPS steadily. Keep this one on your watch list given that earnings have increased quarter-over-quarter. But there are stronger stocks to analyze…

4) PulteGroup (NYSE:PHM): Current Price $

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 9,256 6,263 4,084 4,569 4,137
Diluted EPS ($) -8.94 -5.81 -3.94 -2.90 -0.55

Revenues fell off at PulteGroup in 2011, and shareholders are dealing with negative EPS numbers. However, earnings are improving, so let’s keep our eye on future results.

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 1,142 1,262 881.04 1,069 1,303
Diluted EPS ($) -0.34 0.04 -0.03 0.11 0.30

The last two quarters have been good for the company with both sales and EPS going up. We have another candidate that reported two quarters of improving EPS…

3) Lennar (NYSE:LEN): Current Price $

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 4,575 3,119 3,074 3,095 4,105
Diluted EPS ($) -7.01 -2.45 0.51 0.48 3.11

The company obviously took it on the chin in the housing meltdown during 2007 and 2008. But what’s not too bad is the steady earnings progress it has been making since then. Let’s take a closer look at the quarterly data:

Quarter Nov. 30, 2011 Feb. 29, 2012 May. 31, 2012 Aug. 31, 2012 Nov. 30, 2012
Revenue ($) in millions 952.65 724.86 930.16 1,100 1,350
Diluted EPS ($) 0.16 0.08 2.06 0.40 0.56

These results are not for the faint-hearted! Although, earnings have been increasing quarter-over-quarter, which is a key step in our investment analysis. Let’s look at the other stocks in the sector…


2) DR Horton (NYSE:DHI): Current Price $

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 6,646 3,658 4,400 3,637 4,354
Diluted EPS ($) -8.34 -1.73 0.77 0.23 2.77

Like Lennar, DHI is also upbeat — especially in 2012. The housing market has made an interesting comeback.

Next, our CHEAT SHEET investing framework asks us to drill down to the recent quarterly data:

Quarter Sep. 30, 2011 Dec. 31, 2011 Mar. 31, 2012 Jun. 30, 2012 Sep. 30, 2012
Revenue ($) in millions 1,098 906.60 961.20 1,150 1,336
Diluted EPS ($) 0.11 0.09 0.13 2.22 0.33

Unfortunately, there’s little consistency here. Alarmingly, in 2012, earnings have fallen even though revenues have risen. We might do better with the other home builders below…

1) Toll Brothers (NYSE:TOL): Current Price $

Fiscal Year 2008 2009 2010 2011 2012
Revenue ($) in millions 3,148 1,755 1,495 1,476 1,883
Diluted EPS ($) -1.88 -4.68 -0.02 0.24 2.86

Some strong revenue and earnings growth for this up-market builder in 2012, and definitely worth looking at in more detail.

Quarter Oct. 31, 2011 Jan. 31, 2012 Apr. 30, 2012 Jul. 31, 2012 Oct. 31, 2012
Revenue ($) in millions 427.78 321.96 373.68 554.32 632.83
Diluted EPS ($) 0.09 -0.02 0.10 0.36 2.42

Toll Brothers has “got it right” with EPS increasing during the last three quarters. This company matches up with our parameters for the earnings test because they are increasing earnings quarter-over-quarter.

“E = Earnings Are Increasing Quarter-Over-Quarter” is a core component of our successful CHEAT SHEET investing framework. Don’t waste another minute — click here to discover our CHEAT SHEET stock picks now!