Toll Brothers Inc (TOL), KB Financial Group, Inc. (ADR) (KB), Lennar Corporation (LEN): Best of Breed: Homebuilders

It is no secret that the US housing rebound has been a topic of conversation. The US housing market has taken a promising turn. According to the National Home Builders Association, 917,000 single-family homes were started in February 2013, up 28% year-over-year. Builder permits also increased to 946,000, up 34% year-over-year. With the housing market booming, it is important to do your due diligence in evaluating companies.

When evaluating the performance of homebuilders, there are a few important metrics to focus on, in addition to our traditional fundamentals. We are looking for companies who have increased the number of homes delivered, the number of new orders or contracts, their average selling price per home, and the number of homes currently in backlog. Let us know analyze a few top homebuilders to see where they measure in terms of our housing metrics.

Lennar Corporation (NYSE:LEN) has benefited greatly from the recent upswing in the housing market. In the first quarter of 2013 Lennar Corporation (NYSE:LEN) delivered an earnings beat of $.26 per share on an estimate of $.15. The company’s home deliveries and new orders were up, year-over-year, 28% and 34% respectively. Lennar Corporation (NYSE:LEN) also increased its average selling price from $246,000 to $269,000, or 9%. The company also has a hefty backlog of 4,922 units or $1.5 billion, up 82% and 105%. Lennar Corporation (NYSE:LEN) currently trades at just 12.83 trailing-twelve months earnings and analysts are predicting growth of 32% and 28% in 2013 and 2014 respectively. When a company has a PE ratio less then its expected growth rate, which Lennar Corporation (NYSE:LEN) has in this case, the stock price has yet to catch up with the company’s growth potential. This is also shown in the PEG ratio of which Lennar sports a hefty 12.64.

Toll Brothers Inc (NYSE:TOL)

The next company we will look at is Toll Brothers Inc (NYSE:TOL). The company, commonly considered in the upper echelon of homebuilders, recently reported very promising first quarter results. Home deliveries and new contracts were up 32% and 52% year-over-year. However, Toll Brothers Inc (NYSE:TOL) average selling price decreased from 569,000 to 582,000, or -2%. The company has a promising backlog of 2,796 units or $1.86 billion, which is an increase of 66 and 57%. The average price per unit in backlog is $665,000, which is up $39,000 or 6% year-over-year. Toll Brothers Inc (NYSE:TOL) also has great growth prospects with analysts estimating revenue growth at 32% and 39% for 2013 and 2014.

Last we will take a look at the smallest of our three homebuilders, KB Homes (NYSE:KBH). The company is also coming off a tremendous first quarter in 2013. KB Homes’s deliveries and new orders were up 29% and 54%. The company had an average selling price of $271,000, up $52,300 or 24% year-over-year. This is actually the highest first quarter selling price KB Homes has had since 2006 and has now had 11 consecutive quarters of improvement in selling price quarter-over-quarter. The number of homes in backlog increased to $700 million from $460 million, up 52%. Analysts expect KB Homes to grow revenue at 30% and 40% over each of the next two years and the company sports a PEG ratio above 24.

All three of these companies reported very optimistic first quarter results. The performance of these homebuilders provides strong support that the housing market is indeed rebounding. With increasing orders, backlog, and selling prices these companies stand to make a profit and report great results for many quarters to come. If you truly believe that housing in the US is back, it would smart to investigate these companies.

In my personal opinion, KB Homes presents a very interesting investing opportunity. The company has the greatest potential upside (which comes with the greatest risk of course). KB Homes was able to show significant year-over-year increases in all of our homebuilder metrics plus the company has a PEG ratio 12 times the industry average. If you are looking to speculate a little bit on the housing rise, KB Homes might be the company for you.

The article Best of Breed: Homebuilders originally appeared on is written by Daniel Paterson.

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