KBH

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Housing Remains Resilient; D.R. Horton Says Has “Pricing Power”

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On Tuesday, the US’ largest homebuilder, as measured by number of homes closed, revenue and pre-tax income, reported solid fiscal 2014 first-quarter results, lifting spirits across much of the industry. D.R. Horton’s (DHI) homebuilding revenue leapt 33% thanks primarily to a 19% increase in homes closed in the quarter and an average sales price increase of 10%, to $275,600. Home sales gross margin advanced 350 basis points, to 22.3%, helping drive a 76% increase in pre-tax income for the period. The company’s diluted earnings per share increased 80%, to $0.36. The pace of orders was also robust, jumping 14% in value to $1.5 billion and 4% in homes to 5,454. D.R. Horton’s sales order backlog also swelled 20% in value to … Read more

Toll Brothers Sees Leveling of Demand But Outlook Remains Strong

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On Tuesday, one of the largest luxury homebuilders in the US, Toll Brothers (TOL) released its results for the fiscal fourth quarter (ended October 31, 2013). Revenue growth and unit delivery expansion were fantastic, up 65% in dollars and 36% in units compared to the prior-year quarter. Net signed contracts of $839 million and 1,163 units rose 23% in dollars and 6% in units compared to last year’s period, while on a per-community basis, the fourth quarter witnessed net signed contracts per community (5.17) that was the highest for any fourth quarter since 2005. Backlog of $2.63 billion and 3,679 units rose 57% in dollars and 43% in units compared to the year-ago mark. The average price of homes delivered … Read more

Housing, Hormel and Hewlett-Packard

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Tuesday brought about a nice S&P/Case-Shiller number and better-than-expected quarterly performance from Hormel Foods and Hewlett Packard. Though we liked the news, firms in our Best Ideas portfolio and Dividend Growth portfolio represent our best ideas at any time. Housing From press release: “Data through September 2013, released today by S&P Dow Jones Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed that the U.S. National Home Price Index rose 3.2% in the third quarter of 2013 and 11.2% over the last four quarters. In September 2013, the 10- and 20-City Composites gained 0.7% month-over-month and 13.3% year-over-year.” To continue reading >> Homebuilders: DHI, GFA, JOE, KBH, LEN, MDC, MTH, NVR, PHM, RYL, SPF, … Read more

Homebuilders Report Nice 3Q; We’re Not Putting New Money to Work in Them

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We’ve seen the recent hike in interest rates put a moderate dent in the upward trajectory of performance at Lennar (LEN) and KB Home (KBH) in their respective third quarters. This was also the case in PulteGroup’s (PHM) and M/I Homes’ (MHO) third quarter performance, which we will outline in this piece. However, recent trends in the average 30-year fixed rate, which hit a four-month low last week, may make fourth-quarter performance a bit better for the group than originally anticipated. Still, we’re not putting new money to work in the industry at this time on the basis of valuation. PulteGroup On Thursday, PulteGroup reported decent third-quarter results that showed strong revenue, growth, home selling-price expansion, and solid margin performance. … Read more

Third Quarter Results at Lennar and KB Home Were Resilient

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We were hit with a flood of housing data during the past week, with two of the nation’s largest homebuilders posting decent third-quarter results. Recent data also revealed a continued upward trajectory in home prices across the US. Let’s dig into the developments. Housing Price Improvements The S&P/Case Shiller 20-City Composite Home Price Index (1) increased 1.84% sequentially to 162.49, revealing that housing prices have now finally recovered to 2004 levels. The pace of expansion is off slightly from the previous sequential month’s rate of 2.2% growth, but we do not believe the slight slowdown in the rate of growth is enough to draw any significant conclusions with respect to the pace of the upward trajectory. All of the 20 cities measured in the index showed … Read more

Why Valuation (Still) Matters: The Homebuilders

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At Valuentum, our stock-selection methodology blends two long-time investing foes—value and momentum (click for why this combination is so powerful). For an idea to fit the profile of a ‘Valuentum stock’, it simply cannot just be undervalued, nor can it exclusively possess fantastic momentum and technical measures. The firm must have both characteristics and pass the qualitative muster of our analyst team to make the cut for addition to our actively-managed portfolios. We credit the Valuentum discipline as the major driver behind the significant outperformance in our portfolios. In addition to highlighting one of the biggest industry collapses during the year (the mREITs—click here) and perhaps the biggest alpha trade (stock up, market down) of the year (Apple recently), the Valuentum process … Read more

Positive US Housing Data Persists; The Recovery is Real

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Through the course of this week, we’ve received a number of positive data points suggesting the US housing recovery is well on its way. Long-time Valuentum members know that we’ve been very bullish on the housing turn since early 2012 (view the January 2012 edition of our Best Ideas Newsletter here). The S&P/Case-Shiller Index kicked off the week’s events with a 12% year-over-year price increase in the 20-city composite index for April (there’s a two month lag in the data). The 10-city index also rose 11.6% year-over-year. Both metrics have recovered to 2004 levels, but both remain well below the 2007 all-time (“bubble”) highs. Image Source: S&P Dow Jones Indices Image Source: S&P Dow Jones Indices We were also very … Read more

Why Valuation Matters: The Homebuilders

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Although the broader stock market sold off aggressively Thursday (the S&P 500 fell 2.5%), one industry was under particular pressure: the homebuilders. Shares of PulteGroup (click ticker for report: ), Lennar (click ticker for report: ), KB Home (click ticker for report: ), Toll Brothers (click ticker for report: ), DR Horton (click ticker for report: ), and Ryland (click ticker for report: ) all suffered declines of at least 5%. Homebuilding stocks have greatly benefitted from improving housing trends, but share prices had moved well ahead of the respective firms’ fundamentals. In our housing market industry overview released late May, we mentioned that homebuilding valuations looked particularly stretched. The group’s elevated prices coupled with the potential for the Federal … Read more

Toll Brothers’ Fourth Quarter Results Were Fantastic

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Tuesday morning, one of the nation’s premier homebuilders, Toll Brothers (click ticker for report: ) reported spectacular fourth quarter results. Revenues surged 48% year-over-year to $632.8 million, well ahead of consensus expectations. Earnings per share jumped to $2.35 per share from $0.09 a year ago thanks to the release of deferred tax assets. Pretax income jumped nearly 300% year-over-year to $60.7 million. Key metrics for Toll’s business were mostly strong across the board. Net signed contracts in the fourth quarter jumped 70% year-over-year to 1,098 units, with a 75% surge in value to $684.1 million. The firm’s backlog jumped 54% to 2,569 units, with the value of that backlog increasing 70% to $1.67 billion. Stronger pricing also helped gross margins … Read more