LOS ANGELES (AP) -- KB home shares surged to a new high on Wednesday, as investors weighed preliminary figures from the homebuilder showing orders for new homes are up 54 percent so far in its fiscal first quarter. A Raymond James analyst upgraded the Los Angeles builder's shares, citing the unexpected spike in orders.
THE SPARK: KB, one of the nation's largest homebuilders, reported late Tuesday afternoon that it had received 750 new home orders as of Jan. 18, compared with 488 through Jan. 20 last year. The builder also noted that it expected the growth to moderate as the quarter continues.
The company also said it is planning a public offering of up to $115 million of its common stock and up to $172.5 million of senior notes. The notes will be convertible into shares of KB Home's common stock.
THE BIG PICTURE: An improving housing market over the past year has brightened fortunes for U.S. homebuilders. As a result, many are expecting a strong spring home-selling season, traditionally the peak period for home sales.
KB Home, which builds homes-to-order, has seen sales and the average selling price of its homes increase in recent quarters. It's also experiencing growing demand for bigger homes with more design options.
THE ANALYSIS: In a research note on Wednesday, Raymond James analyst Buck Horne said KB Home's home order trends in the December-February period are surprisingly strong.
Horne noted that the builder's orders were trending up just 4 percent on an annual basis in its November quarter. As a result, the analyst had been projecting a modest 7 percent gain in home orders for the fiscal first quarter.
For now, Horne said he needs to step back and evaluate whether KB's spike in orders is a one-time quirk or the beginning of a genuine surge in demand among first-time home buyers. He also warned that investors should be cautious about extrapolating too much from the builder's preliminary data.
Still, Horne said he expects the sharp gain in orders will be enough to sustain, if not propel, homebuilding valuations until the next set of builder earnings. Several homebuilders are due to report quarterly results next week.
Horne also upgraded KB Home's stock to "Market Perform" from "Underperform."
SHARE ACTION: KB Home shares gained $1.64, or 9.6 percent, to $18.75 in midday trading. That's a 52-week high. The stock is up almost 19 percent since the start of the year.