KB Home's Improving Home Portfolio Makes It a Good Bet

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Apr 27, 2015

KB Home (KBH, Financial) is fast increasing its reach. It has deployed 34 communities in the last two years before this quarter and out of them only three communities have renovating charges at their time of deployment or in the successive periods.

The strategic mortgage joint venture of KB Home called Home Community Mortgage was introduced in July and continues to expand its implementation. This planned joint venture is yet to become fully optimized and is forecasted to significantly positive impact on the expansion of company’s business while moving into 2015. There’s a continued improvement in the service levels along with the impressive capture rate growth supported by the company’s solid balance sheet.

The new business division of HB Home is estimated to reposition the company on the path of accelerated growth.

Smart moves

KB Home concluded the recent quarter by selling 227 communities, an increase of 19% from just 191 communities last year. In the fourth quarter, it introduced 40 fresh communities and wrapped up 13. Its average community count during the fourth quarter increased 13% to 214 over the same period last year. In the quarter, KB Home invested $272 million in land making its net owned and controlled log count 52,198 by year end. Going forward, it expects to further enhance the community count increase during 2015.

KB Home’s total order performance for the quarter remained in line with its expectations to maintain pace on a per community basis approximately closer to the previous year’s consecutive quarter and enhancing the total number of orders in general aligning with community count expansion. Total orders during fourth quarter of 2014 enhanced by 10% to 1,706 or 2.7 orders per average community per month nearly similar to the rate witnessed in fourth quarter of 2013. Further, its total order value in the quarter enhanced 22% over last year to $587.4 million owing to greater total orders and improved average selling prices.

The strategic execution of business growth strategy by KB Home has allowed it to grow the community count and capture significant customer orders for delivering improved homes in the struggling market scenario.

Conclusion

Overall, the investors are advised to invest into KB Home looking at the impressive valuation levels with trailing P/E and forward P/E ratios of 1.46 and 10.73 respectively. However, the PEG ratio of -1.93 is concerning and depicts no growth but decline. The profit margin of 38.25% is attractive. KB Home needs to further optimize its balance sheet having huge total debt levels of $2.58 billion and total cash of merely $356.37 million. But, the housing market is forecasted to improve and drive greater revenue streams for the home major.