KB Home (KBH, Financial) had announced first quarter of 2015 total revenue of $580.1 million, up 29% from $450.7 million during the same period last year and allowed by a significant growth in the company’s land and housing sale revenue. Importantly, KB Home’s net revenue has grown year-over-year for 14 successive quarters.
KB Home also declared net income for the first quarter of 2015 of $7.8 million, or $.08 per diluted share as against $10.6 million, or $.12 per diluted share during the same period last year.
The benefits to KB Home from the year-over-year increase in revenue were partially offset by the decline in net income and earnings per share during the same period.
A strong forecast
For the complete fiscal year 2015, KB Home’s currently forecasts housing revenue to be in $2.8 billion to $3.1 billion range. The continued year-over-year improvement in community count and net order value is believed to drive significant top line growth for the company, mutually benefiting KB Home’s and its key stakeholders as the homebuilding market gradually recovers from the economic downturn of 2008.
The chart above depicts the contribution of each of the Central, West Coast, Southeast and Southwest regions in the first quarter of 2015 homebuilding revenue, backlog value, homes delivered and net order value for the company. These charts demonstrate the geographically diverse operations of KB Home’s in 40 key markets with a significant focus on superior growth, preferred sub-markets. KB Home’s key markets include California at the West Coast; Nevada and Arizona at the Southwest; Texas, New Mexico and Colorado at the Central and finally, Virginia, North Carolina, Maryland and Florida in the Southeast.
The charts above illustrate significantly diverse and very well-distributed lot position and percent of lots by region until February 28, 2015 for the company. This also signifies that KB Home is hugely focused on expanding its customer base across all the key regions in the United States which are expected to contribute significantly to its prospective long-term growth.
A strategic land portfolio is an advantage
The strategic distribution of number of lots owned and optioned by KB Home’s to accelerate the company growth through enhancing the net order value, backlog, number of homes delivered and revenue for the quarter is believed to match the company’s growth with the ongoing market recovery and significantly benefit the homebuilding major, going forward.
Moreover, it has achieved 14 successive quarters of superior year-over-year revenue expansion. Going forward, KB Home’s is diligently focused on its three major strategic efforts of growing its community count, increasing revenue per community and expanding profitability per unit. Apart from these key efforts, KB Home is also strategically focused on enhancing its return on investment. KB Home’s target on efficiently utilizing its key assets and uniquely reinvesting its expanding profits towards its future growth.
Better economic growth will lead to better times
The chart above depicts the improving year-over-year global economic growth, increasing sharply from negative in 2013 to significantly positive forecasted data for the fiscal years 2017 and 2018. Therefore, the ongoing solid and steady market recovery is estimated to greatly benefit KB Home, moving ahead.
KB Home’s keenly focused efforts on enhancing its inventory for the past several quarters amid a tough operating economic environment which is forecast to significantly benefit the homebuilding major by allowing it to fulfill the estimated steadily rising demand for new homes as the income levels improve over time.
The chart above indicates that the short-term growth prospects of building majors look positive with the steadily growing building approvals over the years.
Conclusion
Overall, the investors are advised to hold their position in KB Home looking at the declining future growth prospects for the company with PEG ratio of -1.40 that signifies no growth but decline compared to healthy industry’s average of 0.82. However, KB Home is logically valued with trailing P/E and forward P/E ratios of 1.66 and 11.52 respectively which is better than the industry’s average P/E of 22.91. The profit margin of 36.18% seems satisfactory. But again, KB Home’s is significantly debt-burdened with huge total debt of $2.82 billion against weaker total cash position of $545.64 million only, restricting the company to plan for future growth investments.
