KB Home (NYSE:KBH) upgraded by KeyBanc Capital Market

KB Home (NYSE:KBH) stock fell 2.36% (As on September 20, 11:16:10 AM UTC-4, Source: Google Finance) though KeyBanc Capital Markets upgraded the shares to Sector Weight from Underweight based on their “Early Pain = Early Gain” thesis. The analyst told investors in a research note that, on balance, they see fundamental and rate pressure persisting but positive relative performance, supporting their upgrades. The analyst stated that since their January 2022 downgrade, fundamentals are weaker, credit policy is tighter, and builder valuations are lower, but the essence of their call “lies between Jessie Livermore (‘There is a time to go long, a time to go short, and a time to go fishing’) and Wayne Gretzky (‘Skate to where the puck is going, not to where it is’).”

Meanwhile, for the fiscal 2022, the company expects Housing revenues to be in the range of $7.30 billion to $7.50 billion. Average selling price is projected to be approximately $500,000. Homebuilding operating income as a percentage of revenues expected to be in the range of 16.0% to 16.6%, assuming no inventory-related charges. Housing gross profit margin is expected to be in the range of 25.6% to 26.2%.

Moreover, the Company had total liquidity of $925.6 million, with $244.2 million of cash and cash equivalents and $681.4 million of available capacity under its unsecured revolving credit facility. Inventories grew 16% to $5.56 billion. Investments in land acquisition and development for the six months ended May 31, 2022 increased 24% to $1.40 billion, compared to $1.13 billion for the year-earlier period. The Company’s lots owned or under contract increased to 89,778, compared to 86,768. The lot pipeline has expanded 16% since May 31, 2021 as a result of the Company’s investments in land and land development over the past 12 months. Of the Company’s total lots, approximately 58% were owned and 42% were under contract. The Company’s 51,902 owned lots represented a supply of approximately 3.9 years, based on homes delivered in the trailing 12 months.

In addition, the ending backlog value grew 43% to $6.12 billion, the highest second-quarter level in the Company’s history, with each of the Company’s four regions generating increases ranging from 18% in the West Coast to 98% in the Southeast. Ending backlog grew 23% to 12,331 homes. Net order value expanded by $87.9 million, or 4%, to $2.12 billion. Net orders of 3,914 decreased 9%, reflecting a moderation in monthly net orders per community to 6.2, compared to 7.0, partly offset by an increase in average community count.

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