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

1/31/2014 7:00:00 AM
Referenced Stocks:KBH

KB Home reported solid second-quarter fiscal 2014 results, surpassing the Zacks Consensus Estimate for both earnings and revenues. Earnings of $0.27 improved significantly from loss in the year-ago quarter on the back of solid revenues, strong housing gross margins and better operating leverage. The company continued to witness double digit increase in pricing due to shift in mix towards higher priced homes. Order trends, which rebounded in the first quarter, continued to gain strength during second quarter 2014. The order turnaround was driven by aggressive land investments made by the company in the past quarters. However, number of homes delivered continued to decline during the quarter. This remains a concern for the company. Rising input cost and a lack of geographic diversity also remain headwinds. We, therefore, have a Neutral recommendation on KB Home.


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. Nationstar Mortgage has been managing KB Home's mortgage banking applications since May 2012. Nationstar Mortgage will continue to perform its existing functions till the rollout of Home Community Mortgage begins operation.

Home Community Mortgage recently received the necessary regulatory approvals and KB Home has started its rollout. Home Community Mortgage is expected to begin operation in the third quarter 2014.

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