KBH - Embedded Expectations Analysis - 2019 05 28
KB Home (KBH:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Assets, with a 1.0x Uniform P/B. At these levels, markets have bearish expectations for the firm, and management has concerns about the impact of macroeconomic factors on growth, their operating margins, and the average selling price declines.Specifically, management may be concerned about the impact of interest rates, labor pressure, and the sustainability of macro tailwinds. Moreover, they may lack confidence in their ability to improve their operating margin, reduce SG&A expenses, and sustain reductions in incurred interest. In addition, they may be concerned about demand seasonality, the potential of their planned openings, and declines in their average selling prices. Also, they may lack confidence in their ability to sustain closeout community occupancy growth, their Mesa community sales pace, and cash flow capabilities. Finally, management may be exaggerating the value of their backlog and their community openings execution.
KB Home is a homebuilding company. The company builds a variety of homes designed primarily for first-time and first move-up, as well as second move-up and active adult homebuyers, including attached and detached single-family residential homes, townhomes and condominiums. The company's financial services operations provide various insurance products to its homebuyers in the markets where it builds homes and provide title services in certain of those markets. The company's financial services operations also provide mortgage banking services, including residential consumer mortgage loan originations, to its homebuyers indirectly through KBHS Home Loans, LLC, a joint venture the company formed with Stearns Lending, LLC.
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