Yahoo Finance KB Home (KBH) Rides on Expansion, Opens New Home Communities
In a bid to increase community count, KB Home KBH, one of the largest homebuilders in the United States, announced the opening of home communities at Sunset Hills in Kyle, Lake Minneola Landings in Clermont and Willowmore at Park Place.
The move underscores KB Home’s aim to boost home deliveries for driving revenues. KB Home is a highly consumer-centric company focused on the Built-to-Order approach, which provides buyers with a wide range of choices.
That said, all of these new home communities allow homebuyers to design and implement features and amenities of their choice. Not only has this approach lent KB Home a competitive edge over its peers, it has also led to low-cost production, thereby improving margins. Additionally, all these communities offer easy access to transport and lie in close proximity to recreational and entertainment destinations.
Moreover, these communities will be built per the latest ENERGY STAR guidelines and include WaterSense, which will help homebuyers save a reasonable amount in utility costs.
Notably, the company’s net orders increased 3% in the third quarter of 2018 to 2,685 homes, rising across the Central and Southeast regions, while net orders fell in West Coast and Southwest regions. In fact, number of homes delivered improved 8% from the year-ago level to 2,988 units in the same quarter. Total revenues of $1.22 billion improved 7.1% year over year on higher housing revenues.
Moreover, the company believes that in 2019, it will be able to rake in housing revenues of $5 billion to $5.3 billion, with average community count growth of 10-15% year over year, homebuilding operating income margin of 8-9%, housing gross profit margin of 17.5-18.2%, selling, general and administrative expense ratio of 9-9.5%, return on invested capital in excess of 10%, and net debt to capital ratio of 40-50% on the back of the Returns-Focused Growth Plan.
The company is also focused on its core KB2020 business strategy which aims to boost scale in existing geographic footprint, improve profitability per unit, generate higher operating margin, and drive earnings while generating positive cash flow to redeploy for growth and debt reduction.
However, rising construction and labor costs, competitive pricing pressure and other supply constraints are keeping the company’s profits under pressure. Shares of KB Home have declined 23.8% underperforming the industry’s decline of 19.1% in a year.
We believe that the company’s regular expansion strategies will help it combat stiff competition and facilitate earnings and revenue growth.
Zacks Rank & Stocks to Consider
KB Home carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Construction sector are Taylor Morrison Home Corporation TMHC, Toll Brothers, Inc. TOL and Armstrong Flooring, Inc. AFI, all with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Taylor Morrison Home has an expected current-year earnings growth rate of 31.3%.
Toll Brothers has an expected current-year earnings growth rate of 44.2%.
Armstrong Flooring has an expected current-year earnings growth rate of 104.8%.
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