KB Home (NYSE: KBH) and D.R. Horton (NYSE:DHI) are both mid-cap construction companies, but which is the better investment? We will compare the two companies based on the strength of their risk, institutional ownership, profitability, earnings, valuation, analyst recommendations and dividends.

Profitability

This table compares KB Home and D.R. Horton’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
KB Home 3.22% 7.57% 2.66%
D.R. Horton 7.38% 14.19% 8.55%

Dividends

KB Home pays an annual dividend of $0.10 per share and has a dividend yield of 0.4%. D.R. Horton pays an annual dividend of $0.40 per share and has a dividend yield of 0.9%. KB Home pays out 7.2% of its earnings in the form of a dividend. D.R. Horton pays out 15.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. KB Home has increased its dividend for 5 consecutive years.

Valuation & Earnings

This table compares KB Home and D.R. Horton’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
KB Home $4.16 billion 0.57 $268.93 million $1.39 19.73
D.R. Horton $13.67 billion 1.21 $1.64 billion $2.66 16.62

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

Risk & Volatility

KB Home has a beta of 1.66, indicating that its stock price is 66% more volatile than the S&P 500. Comparatively, D.R. Horton has a beta of 1.28, indicating that its stock price is 28% more volatile than the S&P 500.

Institutional and Insider Ownership

97.6% of KB Home shares are owned by institutional investors. Comparatively, 81.7% of D.R. Horton shares are owned by institutional investors. 8.6% of KB Home shares are owned by insiders. Comparatively, 7.2% of D.R. Horton shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock is poised for long-term growth.

Analyst Recommendations

This is a summary of current recommendations and price targets for KB Home and D.R. Horton, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
KB Home 4 12 0 0 1.75
D.R. Horton 0 5 11 0 2.69

KB Home currently has a consensus price target of $21.50, suggesting a potential downside of 21.62%. D.R. Horton has a consensus price target of $41.44, suggesting a potential downside of 6.27%. Given D.R. Horton’s stronger consensus rating and higher possible upside, analysts clearly believe D.R. Horton is more favorable than KB Home.

Summary

D.R. Horton beats KB Home on 11 of the 17 factors compared between the two stocks.

KB Home Company Profile

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.

D.R. Horton Company Profile

D.R. Horton, Inc. is a homebuilding company. The Company constructed and sold homes in 27 states and 79 markets, as of September 30, 2015. The Company’s segments include its 39 homebuilding divisions, its financial services operations and its other business activities. In the homebuilding segment, the Company builds and sells single-family detached homes and attached homes, such as town homes, duplexes, triplexes and condominiums. The Company’s 39 homebuilding divisions are aggregated into six segments: East Region, South Central Region, Midwest Region, West Region, Southwest Region and Southeast Region. In the financial services segment, the Company sells mortgages and collects fees for title insurance agency and closing services. The Company has subsidiaries that conduct insurance-related operations; construct and own income-producing rental properties; own non-residential real estate, including ranch land and improvements, and own and operate oil and gas-related assets.

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