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Sunday, May 28, 2023

KB Home is Bullish on Buybacks

KB Home is fully behind its program of stock repurchases.

In a conference call to discuss fiscal first-quarter results, executives of the Westwood-based homebuilder and financial services provider were upbeat about the buybacks.

“Our performance, together with our ongoing share repurchases, drove our book value per share higher to $44.80, up 27% year over year,” said Jeff Mezger, the chief executive of the company.

Book value represents the financial strength of a company based on its assets.

Over the past 24 months, KB has repurchased about 12% of its shares at an average price of $35.74, returning $515 million to shareholders.

“The repurchases are accretive to our earnings and book value per share and will support a higher return on equity in the future without compromising our growth,” he added.

Along with presenting fiscal first-quarter results, the company’s board announced it had approved $500 million in additional stock repurchases, Mezger said.

KB Home is based in Westwood.

“This new authorization provides us with the flexibility to continue to repurchase our shares on an opportunistic basis,” he said. “With our stock currently trading at a significant discount to our book value, the buybacks provide an extremely attractive return on the investment.”

Shares in KB closed at $38.40 on April 6. That is lower than the reported book value of $44.80, but does represent a 19% increase in value since the beginning of the year. The stock closed at $32.33 on Jan. 3.

On March 22, the company reported net income of $126 million for the quarter ending Feb. 28, compared with net income of $134 million in the same period a year earlier. Revenue remained flat compared with the first quarter of the prior year at $1.4 billion.

At least one analyst following the company, Buck Horne of Raymond James & Associates Inc., was positive about KB going forward.

“We are maintaining our Market Perform (or hold) rating on KB Home following stronger than expected F1Q23 results and FY23 guidance, primarily to give ourselves a chance to gauge the impact of recent banking sector volatility, any potential near-term tightening of lending standards, and consumer confidence,” Horne wrote in a research report published on March 23.

“That said, we are growing increasingly constructive on KB and the broader homebuilding sector’s ability to weather recent affordability headwinds, and we are optimistic that an attractive entry point may come into view with better visibility around mortgage lending and/or signs of credit spread reductions.”

During the conference call, Horne asked whether the company was seeing a shift in the types of homes being bought.

“I don’t know that we’ve seen any shift yet,” Mezger responded. “But I do know that buyers are putting offices in there – they’ll take the fourth or fifth bedroom and convert it to a home office of some kind.”

Paola Mendez
Paola Mendez
Paola Mendez graduated from Los Angeles Valley College, then transferred to University of California, and now serves as a Receptionist and Office Assistant to the Los Angeles Business Journal. Paola wears many hats in different departments and is trilingual in English, Spanish and French.

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