KB Home & Dr. Pangloss (KBH)

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KB Home (NYSE: KBH) and the housing sector is far from out of the woods.  Even if you pretend your name is Dr. Pangloss it is hard to find some decent data among the malaise here.  But when you consider just how poor the economy and the consumer is today. It might not be a total head-scratcher as to why shares are not in free fall all over again.

KB Home posted revenue of $910 million for its last quarter.  This isdown from $2.07 billion in the year’s period before.  The number ofdeliveries fell sharply down to 3,912 homes from 8,132..

The average selling price is down much less than many may have guessedwith a new rate of $232,200 from $247,800..

The net loss is atrocious on the surface.  Like you wouldn’t have knownthat.  KB posted a net loss of $307.3 million, or -$3.96 EPS.  But thisis down sharply from the losses a year earlier when it lost over $770million and posted earnings of -$9.99 EPS.

Where you can play Dr. Pangloss and look at the positives here is itspositive operating cash flow of $311.1 million during Q4-2008.Excluding the impact of impairments and abandonments, the companyachieved positive operating income for the first time in fivequarters.  The company also ended the fiscal year with $1.25 billion ofcash and equivalents, and its debt balance at the end of fiscal 2008was $1.94 billion.  That debt level is down some $220.3 million from$2.16 billion at November 30, 2007.

Shares closed at $14.57 yesterday and the 52-week trading range is$6.90 to $28.99.  Shares are initially indicated at $15.00 pre-market.These guys are nowhere close to being out of the woods, but generatingpositive cash flow and reducing debt are all part of the long healingprocess that will allow only the strongest to survive.

Jon C. Ogg
January 9, 2009