During its second quarter 2012 conference call, one of the
leading homebuilding companies in the U.S.,
) declared that it is "going on offense" in order to drive
top-line growth, given the growing housing market recovery. The
company declared that it will be taking four initiatives as its
"going on offense" strategy.
KB HOME (KBH): Free Stock Analysis Report
TOLL BROTHERS (TOL): Free Stock Analysis
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The first strategy involved an investment of $350 million in land
and land development during the second half of fiscal 2012. The
company sought to place the communities in highly desirable
land-constrained submarkets as it would enable it to sell larger,
higher-priced homes, thus driving a strong increase in average
selling price. The other strategies included activating
communities, which were held for future development, increasing
revenues per community, and strengthening management teams with
additional resources. During the past six months, the company has
taken several steps in line with these strategies.
Recently, the company acquired land and lots in two communities
in northeast San Antonio. About 700 new homes are to be
built in the communities of Legend Point and Landmark Pointe.
Construction is expected to start from mid 2013.
KB Home has also acquired 65 lots in Fuquay-Varina, southwest of
Raleigh, North Carolina to build a new community called Lakestone
Village early next year. Lakestone Village will be an addition to
the company's existing communities in Raleigh-Durham area.
The company has also acquired 45 finished lots and 160
undeveloped lands in Copperfield community in Converse. Converse
is one of the fastest growing communities in Northeast Bexar
KB Home acquired lands for 100 luxury homes in the sought after
community of Playa Vista in Westside, Los Angeles. The
construction of homes will start in spring. Even as the rest of
the housing market is recovering, the demand for luxury homes has
been particularly strong. As such,
Toll Brothers, Inc
), another leading luxury homebuilder in the US, has been
witnessing strong overall growth over the past few quarters. The
acquisition of Playa Vista will enable KB Home get a share of the
benefits of the luxury housing market.
KB Home intends to open more than 120 communities in 2013, with
more communities slated for the later half of the year. As such,
community count is expected to increase by at least 15% to 20% by
the end of next year. The company expects profitability for
We are positive about KB Home's aggressive investment in land
assets and communities. The rising demand for new homes has led
to a favorable situation in the housing market, where inventory
levels are dropping and prices are moving up. This has
necessitated the building of adequate number of new homes to
maintain the required level of inventory to meet growing demand.
Acquiring lots and lands will help the company to capitalize on
the increasing housing demand. However, we believe that it may
take time to achieve sustainable profitability as the housing
market recovery process is erratic and uneven.
We currently have a Neutral recommendation on KB Home. The stock
carries a Zacks #3 Rank (a short-term Hold rating).