Amid the backdrop of a challenging housing market, amplified by the Federal Reserve’s rise in interest rate and an inflation-driven affordability crisis, KB Home (NYSE:KBH) stands as a compelling option for investment in the homebuilder space. Despite the broader market dynamics, which include increased construction costs and a supply crunch driven by investors’ demand, KB Home has reported stronger-than-expected revenue and earnings for the most recent quarter.
The company’s robust shareholder return program, underlined by significant share buybacks, continues to fortify its earnings per share growth. Trading at a relative value to industry peers further strengthens the case for its prospects.
KB Home’s Generating Capital for Shareholders
KB Home is one of the most substantial homebuilders in the United States, with operations across 47 markets. The company has an impressive portfolio with over 680,000 quality homes built over its 65-year history and holds the title of the highest customer-ranked homebuilder nationwide, according to independent buyer surveys.
The company maintains a resilient share repurchase program. Since the commencement of regular share repurchases in 2021, the company has successfully repurchased over 22% of the outstanding shares, returning over $1 billion in cash to stockholders during this period.
Recent Financial Results & Outlook
KB Home recently reported financial results for the second quarter. The company’s revenue was $1.71 billion, exceeding analysts’ forecasts of $1.65 billion, though it dropped slightly from $1.77 billion year-over-year. While the number of homes delivered decreased from 3,666 to 3,523, the average selling price rose from $479,500 to $483,000. Earnings per share (EPS) of $2.15 surpassed expectations of $1.80.
As of the end of the quarter, the company had liquidity of $1.73 billion, comprised of $643.5 million in cash and cash equivalents. The remaining $1.08 billion is available capacity in an unsecured rotating credit facility without any cash borrowings. Additionally, the Board of Directors approved a dividend increase from $.20 to $.25 per share on the company’s common stocks in April.
Management has released its guidance for 2024, projecting housing revenues between $6.70 billion and $6.90 billion. The Company expects an average selling price from $485,000 to $495,000, with the housing gross profit margin expected to fall between 21.1% and 21.5%.
What Is the Price Target for KBH Stock?
Analysts covering the company have taken a pragmatic stance on the stock. For instance, Capital analyst Mike Dahl recently raised the share price target from $69 to $70 while maintaining a Sector Perform rating. He noted the company’s solid sales and margin upside amid persistent high interest rates, which elevated homebuying incentives.
KB Home is rated Hold overall, based on the aggregate recommendations and price targets assigned by 11 analysts over the past three months. The average price target for KBH stock is $74.00, representing a potential upside of 3.16% from current levels.
The stock has been on an upward trend, climbing over 42% in the past year. It sits at the upper end of its 52-week price range of $41.66 – $74.66 and demonstrates ongoing positive price momentum, trading above its 20-day (69.38) and 50-day (68.47) moving averages. The stock trades at a relative discount to industry peers, with an EV to FCF of 6.47x compared to the Residential Construction industry average of 15.98x.
Bottom Line on KB Home
Amid challenging housing market conditions, KB Home has continued its robust shareholder return program and impressive quarterly results, fortifying the firm’s investment appeal. The stock’s relative value, compared to industry peers, makes it a compelling investment consideration in the homebuilder space.
