Analyzing Lennar (NYSE:LEN) and KB Home (NYSE:KBH)

Lennar (NYSE:LEN) and KB Home (NYSE:KBH) are both construction companies, but which is the better business? We will contrast the two companies based on the strength of their institutional ownership, dividends, profitability, earnings, analyst recommendations, risk and valuation.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Lennar	9.20%	12.73%	8.57%
KB Home	8.47%	14.02%	8.14%

Earnings and Valuation

This table compares Lennar and KB Home”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Lennar	$35.44 billion	0.82	$3.93 billion	$12.09	9.30
KB Home	$6.93 billion	0.54	$655.02 million	$7.55	7.30

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

Dividends

Lennar pays an annual dividend of $2.00 per share and has a dividend yield of 1.8%. KB Home pays an annual dividend of $1.00 per share and has a dividend yield of 1.8%. Lennar pays out 16.5% of its earnings in the form of a dividend. KB Home pays out 13.2% 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. Lennar has raised its dividend for 1 consecutive years and KB Home has raised its dividend for 2 consecutive years. KB Home is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Analyst Recommendations

This is a summary of current recommendations and price targets for Lennar and KB Home, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Lennar	0	14	2	1	2.24
KB Home	1	7	3	1	2.33

Lennar presently has a consensus target price of $128.85, suggesting a potential upside of 14.54%. KB Home has a consensus target price of $66.14, suggesting a potential upside of 19.99%. Given KB Home’s stronger consensus rating and higher probable upside, analysts clearly believe KB Home is more favorable than Lennar.

Volatility and Risk

Lennar has a beta of 1.33, indicating that its stock price is 33% more volatile than the S&P 500. Comparatively, KB Home has a beta of 1.34, indicating that its stock price is 34% more volatile than the S&P 500.

Insider & Institutional Ownership

81.1% of Lennar shares are owned by institutional investors. Comparatively, 96.1% of KB Home shares are owned by institutional investors. 10.0% of Lennar shares are owned by insiders. Comparatively, 3.9% of KB Home shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a stock will outperform the market over the long term.

Summary

KB Home beats Lennar on 9 of the 17 factors compared between the two stocks.

About Lennar

Lennar Corporation, together with its subsidiaries, operates as a homebuilder primarily under the Lennar brand in the United States. It operates through Homebuilding East, Homebuilding Central, Homebuilding Texas, Homebuilding West, Financial Services, Multifamily, and Lennar Other segments. The company’s homebuilding operations include the construction and sale of single-family attached and detached homes, as well as the purchase, development, and sale of residential land; and development, construction, and management of multifamily rental properties. It also offers residential mortgage financing, title, insurance, and closing services for home buyers and others, as well as originates and sells securitization commercial mortgage loans. In addition, the company is involved in the fund investment activity. It primarily serves first-time, move-up, active adult, and luxury homebuyers. Lennar Corporation was founded in 1954 and is based in Miami, Florida.

About KB Home

KB Home operates as a homebuilding company in the United States. It operates through four segments: West Coast, Southwest, Central, and Southeast. It builds and sells various homes, including attached and detached single-family residential homes, townhomes, and condominiums primarily for first-time, first move-up, second move-up, and active adult homebuyers. The company also provides financial services, such as insurance products and title services, as well as mortgage banking services, including residential consumer mortgage loans to homebuyers. It has operations in Arizona, California, Colorado, Florida, Idaho, Nevada, North Carolina, Texas, and Washington. The company was formerly known as Kaufman and Broad Home Corporation and changed its name to KB Home in January 2001. KB Home was founded in 1957 and is based in Los Angeles, California.