KB Home: A Stock to Profit From the Housing Recovery

KB Home (KBH) recently announced third quarter ended August 31, 2015 total revenue of $843.2 million, up 43 percent year-over-year from $589.2 million in the third quarter of 2014 and depicting 16th successive quarter of revenue growth. KB Home declared third quarter of 2015 net income of $23.3 million, or $.23 per diluted share as against $28.4 million, or $.28 per diluted share during the same period last year.

The key homebuilder reported significant top line expansion while a slight decline in its bottom line primarily due to the steadily improving global housing demand and pricing, while elevated income tax expense for the quarter which brought down the company’s bottom line.

Illustrating strong growth                                                                             

KB Home illustrated significant growth in both the top line and the bottom line, primarily driven by the slow but steady improvement in the global economic conditions, and thus increasing the demand for new homes and developing on the company’s profit margins.
Enhanced delivery volume along with a greater total average selling price substantially improved the revenue for the quarter. The impressive growth in third quarter of 2015 homebuilding operating income reflects enhanced gross profits from greater delivery volume.

KB Home also delivered year-over-year expansion in the ending backlog for KB Home coupled with a satisfactory increase in the average sales price of the homes sold over the years in addition to the product mix moving in line with the core market demand, strongly positioning KB Home for long-term sustainable growth.

KB Home is believed to be well-positioned for notable long-term growth, supported by the steadily improving global macroeconomic conditions and the company’s robust backlog on new homes.

The satisfactory year-over-year improvements in net order value, backlog value and adjusted housing gross profit margins suggest steadily improving macroeconomic conditions driving both the overall demand and pricing improvements.

Fundamentally strong

KB Home has extended its revolving credit facility with an expansion in total commitment from $200 million to $275 million, maturity extension till August 2019 from March 2016 earlier and sublimit for the letter of credit enhanced to $137.5 million from $100 million. Further, the key homebuilder has notably grown its active lender base and optimized costs and fee structure.

Importantly, The Board of Directors at KB Home has announced a quarterly cash dividend of $.025 per share on its common stock to be paid on November 19, 2015 to all the key stockholders as of November 5, 2015.

The homebuilding major is seen to be committed towards returning a majority of the invested capital to its key stakeholders in form of dividends by maintaining a healthy liquidity position both over the short-term and long-term.

Fitch Ratings recently provided an Issuer Default Rating (IDR) of 'B+' to KB Home with a stable rating outlook and primarily driven by the company’s strategic utilization of return on invested capital, conventional development practices, keen focus on customer and products, an impressive geographical diversity, strategic lowering of its inventory exposure and delivering sustainable free cash flow from operations even in the toughest industry downturn.


Hence, KB Home looks like a good investment as the company is witnessing growth across the board. So, it will be a good idea to stay invested in the stock for long-term gains.
Published on Nov 5, 2015
By Vinay Singh

Copyrighted 2020. Content published with author's permission.

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