Our database of 13F filings shows that at the beginning of October Citadel Investment Group, a large hedge fund managed by billionaire Ken Griffin, owned about 540,000 shares of KB Home (NYSE:KBH), a $1.2 billion market cap homebuilder which is concentrated on the Sunbelt and a few other fast-growing states. A recent 13G filing shows that the fund’s position has since increased, to 3.7 million shares, so we can see that Citadel has been active in buying the stock recently. Check out more of Griffin's stock picks.
KB Home’s fiscal year ended in November 2012, and the company has just released its report for the year as well as for the fourth fiscal quarter. For the year, revenue was up 19% from fiscal year 2011and though earnings were negative the company’s net loss was only a third of what it had been in the previous fiscal year. The fourth quarter saw high sales, likely due to seasonal factors, and profits; however, KB Home had actually had higher earnings in the fourth quarter of the last fiscal year.
Wall Street analysts seem to believe that continued strength in the housing market will help KB Home continue to improve its bottom line. Consensus has the company breaking into the black in the current fiscal year ending in November 2013, with 12 cents in EPS expected for the year. That generates a very high current-year P/E, but the sell-side then expects even better numbers on a forward basis and so the forward P/E multiple is 14. If the company does meet that trajectory, it wouldn’t need to continue growing much from that point; of course, there’s good reason to doubt that analyst forecasts will turn out to be right. A number of investors apparently don’t believe in KB Home’s prospects: 42% of the outstanding shares were held short as of the most recent data, despite the fact that the stock price has more than doubled in the last year as the market sees at least something of a housing recovery. Of course, buying a homebuilder does carry considerable macro risk as well, as demonstrated by the beta of 2.2.