KBH KB Home

Leading homebuilder KB Home (KBH) announced signing of an agreement with Texas based premier mortgage services provider Nationstar Mortgage. Per the terms of the agreement, Nationstar will become KB Home’s preferred mortgage lender for its customers. Nationstar will provide KB Home’s customers a wide range of financing and loan products in all of the homebuilder’s communities in the US.

The latest agreement is another step taken by KB Home to lure customers in the still fragile housing market. The current downturn in the housing industry combined with an overall weak economic condition, high unemployment rates, reduced credit availability, rising interest rates and lack of incentives like tax-credit for homebuyers is weighing down on homebuilders. Other than that, the housing market has become extremely aggressive and KB Home’s new homes are facing tough competition from housing alternatives, including resale homes, foreclosed homes, short sale homes and rental housing. Increased availability of housing alternatives has been keeping the company’s earnings under pressure.

Based in Los Angeles, California, KB Home has four main reportable segments based on geographical presence: West Coast (comprising California), South West (comprising Arizona and Nevada), Central (constituting Colorado and Texas) and South East (including Florida, Maryland, North Carolina, South Carolina and Virginia). The company’s Homebuilding operations include building and designing homes that cater to first time, move-up, and active adult homebuyers, generally in medium-sized developments close to major metropolitan areas. The segment accounted for 99% of total revenues in fiscal 2011.

Our Recommendation

We currently have an Underperform recommendation on KB Home. The stock carries a Zacks #5 Rank (a short-term ‘Strong Sell’ rating).

 
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