Can Kaufman & Broad Beat the Home-Building Cycles? --- New, Flexible Business Model Hasn't Eased Investor Concerns About Interest Rates
LOS ANGELES -- Over the past three years, Kaufman & Broad Home Corp. has worked hard to develop a marketing-driven approach to home building that it says will insulate it from the industry's notorious cycles.</br></br>But investors, so far, aren't convinced.</br></br>The big home builder last month posted its 17th consecutive quarterly earnings report that topped or matched analysts' expectations. Yet its stock sells for just seven times earnings that are expected to increase by 52% to $145 million, or $3.02 a diluted share, for the fiscal year ending next month. The stock closed yesterday in New York Stock Exchange composite trading at $17.8125, up 6.25 cents and near a 52week low.</br></br>Industry-wide, earnings multiples "are exceptionally low by historical standards," Merrill Lynch analyst Robert F. Curran says, "probably among the lowest ever." The reason: fears that another interest-rate increase is imminent, in a year when rates on 30-year fixed mortgages have already risen nearly a percentage point. Wall Street also frets about spot labor shortages and increasing land and construction-materials costs.</br></br>Bruce Karatz, Kaufman & Broad's chief executive, finds this sentiment exasperating. "The market is saying 'the end is near,' and clearly doesn't give Kaufman & Broad Homes credit for changing its business model and mitigating cyclical risk," he complains.