Additionally, the company also invested $912 million on land in the last quarter, which was nearly twice the average spending rate of the company. This should help D.R. Horton, Inc. (NYSE:DHI) in the future as well, as in the recent quarters, it has benefited from the increased focus on finding new opportunities by evaluating new suburbs, and increasing share in the existing ones.
The expected spec home sales and the increasing lot count give the company a decent base. I’ll recommend a buy on this stock.
KB Home (NYSE:KBH)
The company recently made some announcements that came as a relief to its shareholders. From the end of the last quarter till mid-January 2013, KB’s orders were up 54%. After this, the stock price of KB reached its 52-week high.
The news was assisted by the rise in the capital base of the company. KB Home (NYSE:KBH) plans to issue common stock of $100 million, convertible senior notes of $150 million, and will avail a revolving credit with an initial principal amount of $200 million.
The market awaited this move ever since KB’s South Edge exposure was brought into light. Back in June 2011, KB settled the claims of its lenders for its part in the bankruptcy of the south edge community. The main use of these funds should be for land acquisitions, apart from the recent acquisitions in Raleigh and San Antonio.
However, KB Home (NYSE:KBH) lags behind the other two that were discussed above with respect to cancellation rates. In 2012, KB had a high cancellation rate of 36%, as compared to Lennar’s 18% and D.R. Horton, Inc. (NYSE:DHI)’s 27%. Thus, to improve the rate and increase the backlog conversion rate, it is going to form a new mortgage company in a joint venture with Nationstar Mortgage Holdings Inc (NYSE:NSM).
It will be deployed in the second half of 2013. Nationstar will continue to operate as the mortgage lender for KB until the joint venture is deployed. Prior to the joint venture, Nationstar served the home-buyers of KB as an on-site loan officer. The new company would provide certainty and improvement in the mortgage earnings of KB Home (NYSE:KBH).
Strong growth in orders, along with the capital raised, and the new mortgage company make me bullish about the stock.
What do these homebuilders have to offer?
Lennar and D.R. Horton, Inc. (NYSE:DHI) have their community and lot expansions, respectively, which give their future a solid base and clarity. Additionally, the inclination of Lennar towards multi-family construction, and Horton’s spec houses provide an upside to their profitability.
And as for KB Home (NYSE:KBH), the increased capital base and the new mortgage company strengthens my faith in it. For me all the three stocks are a buy.
The article Investing in These 3 Homebuilders Will Not Disappoint You originally appeared on Fool.com and is written by Shweta Dubey.
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