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

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

KB Home's fourth-quarter fiscal 2014 earnings of $0.27 lagged the Zacks Consensus Estimate by 48% and declined 12.9% year over year. Fewer-than-expected home deliveries, higher construction cost, increased incentives and weaker margin resulted in weak earnings in fourth quarter 2014. Total revenue of $796 million beat the Zacks Consensus Estimate by 2.2% and increased 28.7% year over year owing to improved pricing. The company continued to witness increase in pricing due to shift in mix toward higher priced homes. The order trends benefited from higher average community count and increased emphasis on balancing home selling prices and sales pace in order to optimize the performance of its new home communities. However, rising input costs and a lack of geographic diversity remain headwinds for the company. 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. 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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