Critical Analysis: KB Home (KBH) and Beazer Homes USA (BZH)

KB Home (NYSE: KBH) and Beazer Homes USA (NYSE:BZH) are both small-cap construction companies, but which is the superior investment? We will compare the two businesses based on the strength of their profitability, risk, institutional ownership, dividends, analyst recommendations, valuation and earnings.

Analyst Ratings

This is a breakdown of current recommendations and price targets for KB Home and Beazer Homes USA, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
KB Home 5 11 1 0 1.76
Beazer Homes USA 1 4 0 0 1.80

KB Home currently has a consensus target price of $20.14, indicating a potential downside of 6.88%. Beazer Homes USA has a consensus target price of $13.17, indicating a potential downside of 11.81%. Given KB Home’s higher probable upside, research analysts plainly believe KB Home is more favorable than Beazer Homes USA.

Volatility and Risk

KB Home has a beta of 1.6, suggesting that its share price is 60% more volatile than the S&P 500. Comparatively, Beazer Homes USA has a beta of 2.71, suggesting that its share price is 171% more volatile than the S&P 500.

Dividends

KB Home pays an annual dividend of $0.10 per share and has a dividend yield of 0.5%. Beazer Homes USA does not pay a dividend. KB Home pays out 7.7% of its earnings in the form of a dividend.

Insider and Institutional Ownership

98.4% of KB Home shares are held by institutional investors. Comparatively, 80.8% of Beazer Homes USA shares are held by institutional investors. 8.6% of KB Home shares are held by insiders. Comparatively, 7.6% of Beazer Homes USA shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Profitability

This table compares KB Home and Beazer Homes USA’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
KB Home 3.13% 7.11% 2.45%
Beazer Homes USA -0.14% 3.01% 0.88%

Earnings & Valuation

This table compares KB Home and Beazer Homes USA’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
KB Home $3.93 billion 0.47 $243.37 million $1.30 16.64
Beazer Homes USA $1.88 billion 0.25 $74.43 million ($0.08) -186.60

KB Home has higher revenue and earnings than Beazer Homes USA. Beazer Homes USA is trading at a lower price-to-earnings ratio than KB Home, indicating that it is currently the more affordable of the two stocks.

Summary

KB Home beats Beazer Homes USA on 12 of the 16 factors compared between the two stocks.

About KB Home

KB HOME is a homebuilding company. The Company is engaged in selling and building a range of new homes designed primarily for first-time, move-up and active adult homebuyers, including attached and detached single-family residential homes. It operates through five segments, which consist of four homebuilding segments and one financial services segment. Its homebuilding segments include West Coast, Southwest, Central and Southeast. The homebuilding segments are engaged in the acquisition and development of land primarily for residential purposes. The financial services segment offers property and casualty insurance and, in certain instances, earthquake, flood and personal property insurance to its homebuyers in the same markets as its homebuilding segments, and provides title services in the majority of markets located within its Central and Southeast homebuilding segments. It offers homes in development communities, at urban in-fill locations and as part of mixed-use projects.

About Beazer Homes USA

Beazer Homes USA, Inc. is a geographically diversified homebuilder. As of September 30, 2016, the Company had operations in 13 states within over three geographic regions in the United States. The Company’s segments include West, East and Southeast. The Company markets and sells its products through its Website, www.beazer.com; mobile site, m.beazer.com; real estate listing sites, online advertising, including search engine marketing and display advertising, social media, video, brochures, direct marketing and out-of-home advertising, including billboards and signage, as well as other activities. It offers lender choice and personalization. The Company’s Choice Plans allows buyers to choose living areas, such as the kitchen and master bathroom. Its West segment includes Arizona, California, Nevada and Texas. Its East segment includes Indiana, Maryland/Delaware, Tennessee and Virginia. Its Southeast segment includes Florida, Georgia, North Carolina and South Carolina.

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