LOS ANGELES (
) -- The long-term outlook for public homebuilders may be brighter heading into 2010, but the short-term fortunes of
seem mired in issues unrelated to foreclosure rates, home-price appreciation and housing starts.
KB Home's CFO Raymond Silcock abruptly left the firm, only a few months after having been hired.
There was speculation that Silcock's departure could be related to an ongoing Securities and Exchange Commission investigation into accounting and disclosure issues at KB Home -- but it was just speculation, and the specifics of the SEC investigation remain unclear.
The abrupt departure of the CFO was taking a toll on KB Home shares on Friday. KB Home had the biggest loss, at a little over 4%, among homebuilders at mid-day Friday. KB Home had already reached its average daily volume of trading by mid-day, with close to 4 million shares in play as the CFO walked out the door, by "mutual agreement."
It has been a frustrating year for the homebuilders, and maybe it is even more frustrating for KB Home that just as a more positive outlook is coming into view for the sector -- albeit marginally positive -- it is beset with company-specific negative news.
Is there reason why investors should be looking past the SEC investigation and management shakeup and considering the potential for KB Home to turn a profit in 2010? It is not out of the question.
One reason to keep an eye on KB is that it operates at the lower-end of the market, with a big focus on first-time home buyers, and in typical economic recoveries, it is the low-end homebuilders that lead the sector out of its bottom. While there are significant reasons to take the conventional housing market recovery wisdom with a grain of salt this time around -- the unprecedented level of vacancies among them --
improvements in California's market where KB is a major player bode well for the homebuilder .
James Wilson, analyst at JMP Securities, said KB Home, because of its low-end home market positioning and California footprint, is one of the few homebuilding stocks that he thinks can make it to profitability in 2010.
"Geographic plays over the next year will be an important part of the homebuilder return to profitability," Wilson said.
On the other hand, Bose George, an analyst at Keefe, Bruyette & Woods, said it is not time yet to talk about a recovery in the homebuilding sector, whether it is KB Home or any of the other low-end builders. Even if prices have bottomed in some parts of the country, high inventory and a large and volatile foreclosure pipeline will keep the outlook mired in uncertainty. George estimated that there are several millions units that will move to foreclosure or modification in 2010.
"We still have to figure out a way through these hurdles, and however effective modifications are, there is no mechanism to make sure a very large number of these homes don't go into foreclosure," George cautioned.
-- Reported by Eric Rosenbaum in New York.
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