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KB Home Forays into Texas

Zacks Equity Research

One of the leading homebuilding companies in the U.S., KB Home (KBH) recently acquired 56 acres of land in the existing community of Georgetown Village in downtown Georgetown, Texas. The construction of model homes and land development are expected to commence in spring.

Owing to its operational business model KBnxt, KB Home always begins construction only after a purchase agreement is executed. Therefore, consumers buying KB homes get the liberty to plan their homes according to their preference. The consumers can choose from 15 one- or two- storey floor plans for their homes in Georgetown Village. Georgetown Village homes will have four bedrooms and two-and-a-half baths.

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. As such most home building companies are constructing increased number of new homes in order to maintain the required level of inventory to meet the growing demand.

KB Home intends to open more than 120 communities in 2013, with more communities scheduled to come up in the later half of the year. As such, the community count is expected to increase by at least 15% to 20% by the end of next year. The company expects profitability for fiscal 2013.

With housing market recovery gaining momentum, KB Home believes its strategic initiatives such as overhead reduction, margin expansion, and land investments in higher-priced, better-located communities; and increasing backlog will help it achieve profitability in the upcoming quarters. Though we have faith in KB Home’s strategic initiatives, we believe that it may take time to achieve sustainable profitability as the housing market recovery process is erratic and uneven.

KB Home carries a Zacks Rank #3 (Hold).   

Many other stocks in the homebuilding sector are currently performing well. These include NVR, Inc (NVR) with a Zacks Rank #1 (Strong Buy) and The Ryland Group, Inc. (RYL), and D.R. Horton Inc. (DHI) with a Zacks Rank #2 (Buy).

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