EARNINGS PREVIEW: U.S. Home Builders Had Slow Summer

Date : 10/21/2010 @ 2:22PM
Source : Dow Jones News
Stock : Hovnanian Enterprises Class A (HOV)
Quote : 2.58  0.02 (0.78%) @ 3:59PM

EARNINGS PREVIEW: U.S. Home Builders Had Slow Summer

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TAKING THE PULSE: U.S. home builders' multiyear slump dragged on in the third quarter as buyers continued snapping up bargain-priced foreclosures, unemployment persisted and home values remained depressed.

But it's not all doom and gloom. Builders are cash-rich (some have cash topping $1 billion), helped by land sales and government tax refunds. They're slowly stocking up on new land and restarting construction in communities halted during the housing crash.

Still, few industry watchers are breaking out the confetti.

David Goldberg, a home-building analyst with UBS, predicts that over the next two years, the starts pace will be under pressure and price appreciation will be minimal. "With this backdrop, we remain firmly planted on the sidelines," Goldberg writes in a client note. But he adds that there could be an "eventual robust recovery" 24 to 36 months away.

Recent results provide a glimpse about what to expect as builders report results in coming weeks. Hovnanian Enterprises Inc. (HOV) narrowed its third-quarter loss but contracts plunged 37%. Luxury builder Toll Bros. (TOL) also saw contract signings dip, but it posted a surprise third-quarter profit, its first in three years.

   Standard Pacific (SPF)--reports Tuesday 

Wall Street Expectations: Analysts polled by Thomson Reuters expect a loss of a penny a share on revenue of $220 million. A year ago, StanPac reported a loss of 10 cents a share and revenue of $327 million.

Key Issues: StanPac has emerged from the housing crash as the industry's maverick. While other builders focus on entry-level homes, it's building move-up homes. Competitors are securing land with a small downpayment to reduce risk. StanPac is spending hundreds of millions of dollars on land. "We decided to take the risk ourselves instead of sharing it with others," CEO Ken Campbell recently said.

   PulteGroup (PHM) - Nov. 3 

Wall Street Expectations: Analysts project a loss of 4 cents a share and revenue of $1.04 billion. Pulte's year-earlier loss was $1.15 a share on revenue of $1.1 billion.

Key Issues: Analysts continue watching last year's acquisition of Centex Corp. play out, wondering whether Pulte's acquisition signaled the bottom of the housing slump and whether Pulte will pay dearly for the headline-grabbing deal.

Ticonderoga Securities recently initiated coverage of the sector giant with a neutral rating. "Management continues making solid progress toward the company's integration of Centex, yet we believe there remain strategic, operating and financial hurdles inhibiting shareholder returns relative to our more favored and admittedly less complicated (controversial) names in the home-building industry over the near-to-intermediate term," writes analyst Stephen East.

   D.R. Horton (DHI) - Nov. 12 

Wall Street Expectations: Analysts anticipate a loss of 4 cents a share on revenue of $851 million, compared with the prior-year loss of 73 cents a share on revenue of $1.03 billion.

Key Issues: Horton remains quiet as it focuses on outdoing rival Pulte. The builder is known to construct speculative homes, or ones without a buyer in mind, and that can be risky.

(The Thomson Reuters estimate and year-ago net may not be comparable due to one-time items and other adjustments.)

-By Dawn Wotapka, Dow Jones Newswires; 212-416-2193; dawn.wotapka@dowjones.com


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