Kb Home (KBH): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
KB Home's third-quarter fiscal 2014 earnings of $0.28 lagged the Zacks Consensus Estimate by 26% and declined 6.7% year over year due to higher selling, general and administrative expense ratio, weak orders and impairment charge for planned future land sale. Total revenue of $589.2 million also lagged the Zacks Consensus Estimate. However, revenues increased 7% year over year as an increase in pricing offset the decline in number of homes delivered and weak orders. The company continued to witness increase in pricing due to shift in mix toward higher priced homes. However, the improved order trends witnessed in the first half, declined sequentially by a wide margin in the third quarter which remains a concern for the company. Rising input costs and a lack of geographic diversity also remain headwinds. We, therefore, have a Neutral recommendation on KB Home.

Overview:

Based in Los Angeles, CA, KB Home (KBH) is a well-known homebuilder in the United States and one of the largest in the state. The company's revenues are generated from its Homebuilding and Financial Services operations. The company's Homebuilding operations (99.96% of total revenue in fiscal 2013) include building and designing homes that cater to first time, move-up and active adult homebuyers on acquired or developed lands. KB Home also builds attached and detached single-family homes, town homes and condominiums.

Under the homebuilding business, there are four main reportable segments based on geographical presence: West Coast (comprising California), Southwest (comprising Arizona, Nevada and New Mexico), Central (constituting Colorado and Texas) and Southeast (including Florida, Maryland, North Carolina and Virginia).

KB Home's Financial Services operations (1%) offer mortgage banking, title and insurance services to homebuyers. In Jan 2013, KB Home formed a joint venture called Home Community Mortgage, with its current preferred mortgage lender, National Mortgage. National Mortgage is a subsidiary of Nationstar Mortgage Holdings Inc., one of the largest non-bank mortgage providers in the U.S. Home Community Mortgage started mortgage banking operations from Jul 21, 2014 until which National Mortgage was managing KB Home's mortgage banking applications.



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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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