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KB Homes' Prelim QTD Orders Up Y/Y

Zacks Equity Research

One of the leading homebuilding companies in the U.S., KB Home (KBH) announced preliminary quarter-to-date (:QTD) net order for new homes for first quarter 2013. The number of new homes ordered was 750 as of Jan 18, 2013, up 54% from 488 in the year-ago period.

The company has been delivering solid year-over-year order growth during the past few quarters. The strong order results of the company have been driven by the housing market recovery. 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.

The increase in order for new homes has also been driven by KB Home’s strategic initiatives. The company has made a huge investment of $350 million in land and land development in order to cater to the increasing demand for new homes. Also, the company seeks to place the communities in highly desirable land-constrained submarkets. This strategy will enable the company to sell larger, higher-priced homes, thus driving a strong increase in average selling price. The other strategies included activating communities, which were held for future development, increasing revenues per community, and strengthening management teams with additional resources.  

KB Home recently acquired land and lots in two communities in northeast San Antonio, 65 lots in Fuquay-Varina, southwest of Raleigh, North Carolina, and 45 finished lots and 160 undeveloped lands in Copperfield community in Converse, one of the fastest growing communities in Northeast Bexar County.

All of these initiatives propelled the robust order growth achieved by the company. However, order growth is expected to moderate in the upcoming quarters as the housing market stabilizes.

KB Home intends to open more than 120 communities in 2013, with more communities slated for 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.

We are positive about KB Home’s aggressive investment in land assets and communities. Acquiring lots and lands will help the company to capitalize on the increasing housing demand. However, 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). Some other Zacks Rank #1 (Strong Buy) homebuilding companies that warrant a look include NVR Inc. (NVR), Meritage Homes Corporation (MTH) and MDC Holdings Inc. (MDC).   

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