Mad Money

Cramer: KB Home prime for a takeover

Cramer: KB Home prime for a takeover by THIS...

When Jim Cramer sees a potential blockbuster deal, he wants the world to know.

That is why Cramer focused his unsolicited matchmaking talents toward KB Home, the homebuilder operating in swaths of the U.S., including in California, where it owns a large portion of real estate.

"KB Home is insanely cheap right now, and I think any of the big homebuilders could benefit enormously by acquiring this company while its stock is still depressed," the "Mad Money" host said.

And KB Home's management knows it is a good investment, as management has become very aggressive buying back its own stock. In its latest fiscal quarter, which ran from December to February, KB shrank the share-count by about 8 percent.

To me, that makes this company a prime candidate for a takeover.
Jim Cramer
A KB Home sign stands in front of a house under construction at the Whisler Ridge housing community in Lake Forest, California, U.S.
Patrick Fallon | Bloomberg | Getty Images

With a book value of $19, it was clear to Cramer that this $14 stock is trading a gigantic discount. And based on his accounting, KB Home's assets, especially in California, are worth more than where the stock is currently trading.

"To me, that makes this company a prime candidate for a takeover," Cramer said.

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However, with $2.6 billion in debt on the balance sheet, Cramer considered KB Home to be far from the best company in the industry. But what it does have is location, which is very important in the homebuilding business.

So, who makes sense as an acquirer?

Cramer thinks PulteGroup would be the perfect suitor, a large homebuilder that has struggled to find grown in recent years, and is now having a public leadership squabble.

On Monday, Pulte's longtime chairman and CEO Richard Dugas announced he would retire in a little over a year. The company's founder and largest shareholder, William Pulte, released a public letter indicating that a year was too long and Dugas should step down sooner.

According to The Wall Street Journal, Pulte said he believes Dugas missed opportunities to invest in land.

In an open letter to shareholders on Tuesday, PulteGroup stated "While we have significant respect for Mr. Pulte as the founder of PulteGroup, we believe his campaign is misguided and is not in the best interest of shareholders."

However, Cramer believes that by snapping up KB Home, PulteGroup could then have the scale to challenge larger competitors, such as Lennar and DR Horton. More importantly, the two geographical footprints would complement one another, as Pulte specializes in the East coast and KB Home has major exposure to northern California.

"I'll even waive my matchmaking investment banking fee if the deal actually happens," Cramer said.

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