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One of the leading homebuilding companies in the U.S., KB Home (KBH - Analyst Report) recently acquired 45 finished lots and 160 undeveloped lands in Copperfield community in Converse. Prices of KB homes in Converse are expected to start from $150,000s.

Owing to its operational business model KBnxt, KB Home always begins construction only after a purchase agreement is executed. As such, the consumers buying KB homes in Converse will get the liberty to plan their homes according to their preference. They can choose from the option of one and two story floor plans, ranging from 1,582 to 3,728 square feet.

This process also helps the company turn over its inventory more quickly than its peers, thereby supplying capital for reinvestment. In the long run, this reduces the risk of unsold inventory, leading to higher returns on invested capital.

Converse is one of the fastest growing communities in Northeast Bexar County. The acquisition of the lots and land in Copperfield community in Converse is in line with KB Home’s strategic shift in its geographic footprint. The focus is to place the communities in highly desirable land-constrained submarkets that enable it to sell larger, higher-priced homes, thus driving a strong increase in average selling price.

The rising demand for new homes has led to a favorable situation in the housing market, where inventory levels are dropping and prices are moving up. Therefore, building adequate number of new homes is necessary in order to maintain the required level of inventory to meet the growing demand for homes. Acquiring lots and lands in the Copperfield community will help the company to capitalize on the increasing housing demand.

With housing market recovery gaining momentum, KB Home believes its strategic initiatives including overhead reduction, margin expansion, and land investments in higher-priced, better-located communities; and increasing backlog will help it achieve profitability in the upcoming quarters. Though we have faith in KB Home’s strategic initiatives, we believe that it may take time to achieve sustainable profitability as the housing market recovery process is erratic and uneven.

We currently have a Neutral recommendation on KB Home, a peer of DR HORTON INC. (DHI - Analyst Report). The stock carries a Zacks #3 Rank (a short-term Hold rating).
 

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