By now, I think we all know the drill on homebuilders, and KB Homes (NYSE:KBH) wasn't a major exception to what you've been hearing. Sales for the company's fiscal fourth quarter rose about 32%, with a combination of 16% more homes delivered and 15% higher prices for those homes boosting results. Margins improved, and that, in turn, led to substantially higher profits: Net income was up about 66%, and EPS climbed about 59%.
Below the headlines was more news that looked pretty solid. The unit backlog was up 27% at quarter-end, and the dollar backlog was up about 40% and exceeded $6.7 billion. Orders, though, rose 15%, and I find that number to be interesting relative to the 25% growth reported by Lennar (NYSE:LEN) and the numbers from the likes of Hovnanian (NYSE:HOV).
Two things in particular stand out to me with KB Homes. First, the company looks as though it's poised to grow pretty well relative to the rest of the market next year. While some rough calculations suggest that about 14% earnings growth is expected for the large builders next year, KB reaffirmed guidance of 18% growth.
As an aside, I find it vaguely amusing that analysts have assigned three- to five-year growth rates of 15% for seven of the 10 homebuilders I looked at in that aforementioned calculation. I mean, c'mon, guys, we all know that three- to five-year earnings projections are worthless. But would it be too much trouble to maybe give 12% to the ones you don't like so much and, say, 16% to the ones you do? You know, just to make it look like you actually put some thought into these projections?
Anyway, the second thing I like about KB Homes is how it shares the wealth. Among the larger builders, only M.D.C. Holdings (NYSE:MDC) offers a better yield now that KB Homes has recently boosted its payout. Given the reticence among boards of directors when it comes to cutting dividends (General Motors, anyone?), I'm inclined to view this move as a show of strength and confidence. Of course, time will reveal any distinction between "confident" and "cocky."
In closing, the valuation here seems slightly strange. KB may not have the strongest historical returns on capital in the industry, but it seems a little odd that a company expecting to post above-average growth is treated to a more-or-less average valuation (based upon next year's forecast). Then again, most of the big builders trade in a very tight range from about six to 7.5 times next fiscal year's earnings. That suggests a pack mentality to this Fool and a bit more risk than I'd like to take on in my portfolio.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
