Overview of KB Home (KBH) 4th quarter 2021 earnings report
Category: KB Home (KBH)
Date: 13 January 2021 Stock price of KB Home (KBH): $49.04 Market Capital of KB Homes: $4.3 billion We take a look at the 4th quarter 2021 earnings report of KB Home (KBH), one of the largest and most recognized homebuilders in the United States and has been building quality homes for over 60 years. For the 4th quarter 2021 the group reported revenues of $1.68 billion and net income of $174.2 million.
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We delivered outstanding growth in revenues and margins in our 2021 fourth quarter, leading to a more than 70% year-over-year increase in earnings per share. With the strong finish to 2021, we generated a full-year return on equity of approximately 20% - Jeffrey Mezger, Chairman, President and Chief Executive Officer "
More About KB Home
KB Home (NYSE: KBH) is one of the largest and most recognized homebuilders in the United States and has been building quality homes for over 60 years. Today, KB Home operates in 45 markets across eight states, serving a wide array of buyer groups. What sets us apart is how we give our customers the ability to personalize their homes from homesites and floor plans to cabinets and countertops, at a price that fits their budget. We are the first builder to make every home we build ENERGY STAR® certified. In fact, we go beyond the EPA requirements by ensuring every ENERGY STAR certified KB home has been tested and verified by a third-party inspector to meet the EPA’s strict certification standards, which helps lower the cost of ownership and to make our new homes healthier and more comfortable than new ones without certification. We also work with our customers every step of the way, building strong personal relationships so they have a real partner in the homebuying process, and the experience is as simple and easy as possible
Overview of KB Home (KBH) 4th quarter 2020 earnings report
Three Months Ended November 30, 2021 (comparisons on a year-over-year basis)
- Revenues grew 40% to $1.68 billion.
- Homes delivered rose 28% to 3,679.
- Average selling price increased 9% to $451,100.
- Homebuilding operating income advanced 85% to $214.4 million. The homebuilding operating income margin improved 310 basis points to 12.8%. Excluding inventory-related charges of $.7 million in the current quarter and $11.7 million in the year-earlier quarter, this metric expanded to 12.9% from 10.7%.
- The housing gross profit margin increased 230 basis points to 22.3%. Excluding inventory-related charges, the housing gross profit margin improved to 22.4% from 21.0%.
- The housing gross profit margin improvement mainly reflected a favorable pricing environment due to strong demand and the limited supply of available homes for sale, and lower relative amortization of previously capitalized interest, partly offset by higher construction costs, particularly elevated lumber prices.
- Adjusted housing gross profit margin, a metric that excludes inventory-related charges and the amortization of previously capitalized interest, rose to 24.8% from 24.0%.
- Selling, general and administrative expenses as a percentage of housing revenues improved 50 basis points to 9.8%, mainly reflecting increased operating leverage due to higher revenues, partly offset by higher costs associated with performance-based employee compensation plans, as well as expenses to support current and expected growth.
- The housing gross profit margin increased 230 basis points to 22.3%. Excluding inventory-related charges, the housing gross profit margin improved to 22.4% from 21.0%.
- The Company’s financial services operations generated pretax income of $9.9 million, a 5% increase reflecting higher income from title services and insurance commissions, partly offset by a decrease in the equity in income of its mortgage banking joint venture, KBHS Home Loans, LLC.
- Total pretax income increased 78% to $223.9 million and, as a percentage of revenues, increased 280 basis points to 13.4%.
- The Company’s income tax expense and effective tax rate were $49.7 million and approximately 22%, respectively, compared to $20.0 million and approximately 16%. The higher effective tax rate mainly reflected the substantial increase in the Company’s pretax income which reduced the proportionate favorable impact of federal energy tax credits and stock-based compensation tax benefits on the overall rate.
- Net income of $174.2 million and diluted earnings per share of $1.91 increased 64% and 71%, respectively.
KB Home management commentary on their 4th quarter 2021 earnings
LOS ANGELES--(BUSINESS WIRE)-- KB Home (NYSE: KBH) today reported results for its fourth quarter and year ended November 30, 2021.
“We delivered outstanding growth in revenues and margins in our 2021 fourth quarter, leading to a more than 70% year-over-year increase in earnings per share. With the strong finish to 2021, we generated a full-year return on equity of approximately 20%,” said Jeffrey Mezger, Chairman, President and Chief Executive Officer. “During the past year, we significantly expanded our production capabilities as we scale our business to meet the healthy demand that is driving the housing market and align our starts to net orders. Although operating conditions in 2021 were extremely challenging, with labor shortages and supply chain disruptions, along with municipal and related delays, our teams remained resilient in working through solutions with our trade partners and suppliers.”
“This year marks our 65th anniversary, and we begin 2022 well-positioned to continue to deliver returns-focused growth. Our nearly $5 billion in backlog value and projected substantial year-over-year increase in community count support significant revenue growth this year. Combined with a meaningful acceleration of our operating margin that we anticipate this year, we expect to produce a return on equity above 26%,” concluded Mezger.
“We delivered outstanding growth in revenues and margins in our 2021 fourth quarter, leading to a more than 70% year-over-year increase in earnings per share. With the strong finish to 2021, we generated a full-year return on equity of approximately 20%,” said Jeffrey Mezger, Chairman, President and Chief Executive Officer. “During the past year, we significantly expanded our production capabilities as we scale our business to meet the healthy demand that is driving the housing market and align our starts to net orders. Although operating conditions in 2021 were extremely challenging, with labor shortages and supply chain disruptions, along with municipal and related delays, our teams remained resilient in working through solutions with our trade partners and suppliers.”
“This year marks our 65th anniversary, and we begin 2022 well-positioned to continue to deliver returns-focused growth. Our nearly $5 billion in backlog value and projected substantial year-over-year increase in community count support significant revenue growth this year. Combined with a meaningful acceleration of our operating margin that we anticipate this year, we expect to produce a return on equity above 26%,” concluded Mezger.
Backlog and Net Orders (comparisons on a year-over-year basis)
Balance Sheet as of November 30, 2021 (comparisons to November 30, 2020)
- Ending backlog value grew 67% to $4.95 billion, the Company’s highest fourth-quarter level since 2005, with each of the Company’s four regions generating increases that ranged from 53% in the West Coast to 106% in the Southeast. Ending backlog grew 35% to 10,544 homes.
- Net order value for the fourth quarter expanded by $184.3 million, or 12%, to $1.77 billion.
- Average monthly net orders per community held fairly steady at 5.5, compared to 5.6, with a 10% decrease in net orders to 3,529 resulting primarily from the Company’s lower average community count, which decreased 9% to 214. The Company’s ending community count declined 8% to 217.
- On a sequential basis, the Company’s average community count increased 4%, and its ending community count increased 3%.
- The cancellation rate as a percentage of gross orders for the quarter was essentially flat at 13%.
Balance Sheet as of November 30, 2021 (comparisons to November 30, 2020)
- The Company’s cash and cash equivalents decreased to $290.8 million, from $681.2 million, primarily due to substantial investments in land and land development, share repurchases and a net reduction in debt, partly offset by significant cash generated from operations.
- The Company had total liquidity of $1.08 billion, including cash and cash equivalents and $791.4 million of available capacity under its unsecured revolving credit facility.
KB Home (KHB) stock price chart over the last 5 years
The image below shows the stock price history of KB Home (KBH) over the last 5 years. And its been a good time for KB Home stockholders with the stock increasing by 200% over the last 5 years. Very good returns provided to investors.
The stock of KB Home is trading at closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of KB Home stock is positive at this point.
The stock of KB Home is trading at closer to its 52 week high than it is to its 52 week low which is a clear indication that the short term sentiment and momentum of KB Home stock is positive at this point.
Latest stock valuation of KB Home (KBH)
So what is KB Home (KBH) stock worth based on their 4th quarter 2021 earnings report? Based on their earnings report our valuation model provides a target price (full value price) for KB Home at $54.30 a stock.
We therefore believe the stock of KB Home is undervalued at its current price of $49.04
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price), which in this case is $54.30 thus a good entry point into KB Home would be at $48.90 or below.
We expect the stock of KB Home to kick up from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is undervalued. Since the stock of KB Homes is trading at close to our suggested entry point we rate the stock of KB Home as a buy.
We therefore believe the stock of KB Home is undervalued at its current price of $49.04
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target price (full value price), which in this case is $54.30 thus a good entry point into KB Home would be at $48.90 or below.
We expect the stock of KB Home to kick up from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is undervalued. Since the stock of KB Homes is trading at close to our suggested entry point we rate the stock of KB Home as a buy.
Next earnings release of KB Home
It is expected that KB Home will release their 1st quarter 2022 earnings report in early April 2022