Wayman Value Investing - New Stock Recommendation - March 2024
A new position is being added to the Wayman portfolio
# # # New Position # # #
KB Home (KBH)
Recent Price: 69.75
Market Cap: 5.33B
P/FCF: 5.03
P/E: 9.91
P/S: 0.83
LT Debt/Eq: 0.44
Projected 4yr FCF: 2.9B
Wayman Portfolio Tier: Gather
KB Home, a leading homebuilding company in the U.S., operates across four key segments: West Coast, Southwest, Central, and Southeast. Specializing in various residential properties, including single-family homes, townhomes, and condominiums, KB Home targets a diverse range of homebuyers, from first-time buyers to active adults. Additionally, the company offers financial services such as insurance, title services, and mortgage banking, facilitating the homebuying process for its customers. With operations in multiple states, including Arizona, California, and Texas, KB Home boasts a widespread presence in high-growth housing markets. Originally founded in 1957 as Kaufman and Broad Home Corporation, the company rebranded as KB Home in 2001 and is headquartered in Los Angeles, California.
Despite a challenging year-over-year comparison, forward-looking data is stirring optimism among analysts. The home building industry appears to be on a path of recovery, buoyed by robust orders and a declining cancellation rate. Adding to the allure is the attractive valuation of KB Home’s stock, hinting at potential upside for investors.
The industry’s resilience prompted a shift to more bullish sentiment in recent months. KB Home, in particular, has been a beneficiary of this trend, with its stock outperforming the broader market by a significant margin.
Despite signs of weakness in KB Home’s recent financial metrics, the company’s strategic positioning and forward-looking indicators paint a more optimistic picture. For instance, while 2023 revenue saw a 7% dip, driven by lower home deliveries and average selling prices, management’s outlook for the year ahead suggests a potential improvement. Expectations for higher average prices coupled with increased deliveries hint at a potential rebound in revenue, which is projected to total $6.6 billion for the current year.
The company’s efforts to enhance operating efficiency and strategic share repurchases underscore its commitment to long-term value creation. The overall trajectory of KB Home and the broader home building industry appears positive. With an attractive valuation relative to peers, KB Home looks like a compelling investment opportunity.
Please keep in mind that while some investors might rely on market catalysts when considering what new positions to take, Wayman considers its style to be “catalyst-free investing.” Our reason for purchasing will always be based on our calculations which show a business is worth far more than where the market is pricing it. - Frank Memcaj, Founder of Wayman Value Investing