Schaeffer's Options Center
Sponsored by:
Schaeffer's Daily Option Blog

Why KB Home Could Have Room to Run

Outperforming KBH remains under-loved on Wall Street

by 8/31/2012 11:41 AM
Stocks quoted in this article:

Despite mounting data pointing to a housing-market recovery, Wall Street remains wary of homebuilders. In fact, 88% of stocks in the real estate sector are currently trading north of their respective 200-day moving averages, yet just 41% of analysts have doled out "buy" or better ratings. Among these under-loved outperformers is KB Home (NYSE:KBH - 11.22), which could extend its recent uptrend as the bears change their tune.

On the charts, KBH has outpaced the broader S&P 500 Index (SPX) by nearly 37 percentage points during the past 60 sessions, and has added more than 62% in 2012. Ushering the shares into the black have been their 10-day and 40-day moving averages, which have led KBH roughly 69% higher since early June.

Daily Chart of KBH since June 2012 With 10-Day and 40-Day Moving Averages

Plus, the security could find some extra options-related footing in the short term. Peak put open interest in the front-month series rests at the September 10 strike, with more than 3,200 contracts in residence. Furthermore, another 2,315 puts are docked at the out-of-the-money September 9 strike. As KBH shuffles higher, an unwinding of these pessimistic positions could reinforce the stock's foothold in double-digit territory.

Elsewhere, despite KBH's solid fundamental and technical prospects, short interest edged 1.9% higher during the past month. These bearish bets now account for a whopping 47.3% of the stock's total available float. From a contrarian standpoint, though, this points to an ample supply of sidelined buyers to fuel additional gains. In fact, at KBH's average daily trading volume, it would take nearly eight sessions to repurchase all of these pessimistic positions -- plenty of gas for a short-covering rally.

In similar fashion, the skepticism among the analyst community could also work to KBH's advantage. Currently, just three brokerage firms consider KBH worthy of a "buy" or better rating, compared to 11 analysts offering up "hold" or worse recommendations. Likewise, the consensus 12-month price target on the security stands at $10.13, representing a discount to KBH's closing price of $10.87 on Thursday. A flood of fresh upgrades and/or price-target increases could translate into contrarian boons for the stock.

Investors betting on an extended uptrend for KBH should consider buying the stock's in-the-money January 2013 9-strike call, which was last offered for $2.73.


Featured Brokers
Unusual Option Volume
Option Flow
Most Active Stocks
Most Active Option Strikes
Largest Open Interest

Partner Center

© 2015 Schaeffer's Investment Research, Inc. 5151 Pfeiffer Road, Suite 250, Cincinnati, Ohio 45242 Phone: (800) 448-2080 FAX: (513) 589-3810 Int'l Callers: (513) 589-3800 Email:

All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.

Market Data provided by | Data delayed 15-20 minutes unless otherwise indicated.