By Arti Patel, MarketWatch
SAN FRANCISCO (MarketWatch) -- Homebuilder stocks surged Thursday as upbeat second-quarter earnings from PulteGroup Inc. and Meritage Homes Corp. helped lift the sector a day after it was roughed up by disappointing June new home sales data.
Pulte (PHM) hit a 52-week intraday high of $11.95 a share Thursday. The Bloomfield Hills, Mich.-based home builder's 18.5% pop followed strong earnings.
"On Pulte, they beat on earnings per share and they beat on orders and margins specifically," said Megan McGrath, a homebuilding analyst for MKM Partners. "They had been a laggard on those metrics for the last couple quarters so expectations were lower and so when they beat, the outperformance was greater."
Pulte's second-quarter new home orders jumped 32% year-over-year, spurred by an 8% increase in average selling price and 5% increase in closings. Pulte shares closed Thursday at $11.86 a share.
McGrath noted that investors were cautious after the Department of Housing and Urban Development reported sales of new single-family homes fell 8.4% in June, a five month low.
The gloomy report triggered an investor selloff Wednesday.
"There was some panic selling there," McGrath said. "Confidence is still on shaky ground and these stocks will continue trading aggressively. It's pretty volatile right now."
Their big rebound Thursday was investors' response to increases in order growth posted by both Pulte and Meritage (MTH), an indicator of future revenue and current market health.
Meritage said accelerated demand in key states such as California and Arizona drove the Scottsdale, Ariz.-based company to its highest home orders and total order value in four years.
The stock rose 3% to close at $37.23, hitting a 52-week high along the way.
Ryland Group, Inc. (RYL) also released second-quarter profits in line with analyst expectations Thursday, but saw its stock dip 6 cents a share to close at $24.75 despite a 41.6% increase in new orders and better-than-expected revenues and gross margins.
D.R. Horton, Inc. (DHI) might see similar results after it reports earnings Friday.
"D.R. Horton reached profitability a while ago," McGrath said. "They're the biggest home builder in the U.S. so it's harder for them to see new home growth. Expectations are higher for them going in and I expect solid profitability."
According to McGrath, "the sector's had a good year and they're trading up healthy multiples" with the next five to 12 month outlook positive as "we're bouncing off such a low bottom."
However, for the sector to see continued growth, the two to three-year outlook requires an improvement in overall employment and relative stability on the macroeconomic level.
Another sector issue is the increased distance between the public and private homebuilding companies.
"The public home builders are probably around 25% of total new home sales in the U.S.," McGrath said. "Public home builders are gaining share over private home builders"
The Commerce Department last week reported June housing starts rose 6.9% from May and 23.6% from a year ago.
"In June, new home starts hit their highest level since October 2008, and housing permits are up 29% in the first six months of the year compared to last," acting U.S. Commerce Secretary Rebecca Blank said in a statement.
"Public home builders over the last year have had access to capital and have been able to buy new land and new lots to position themselves in the market," McGrath said. "That's harder to do for a private home builder."
Other sector stocks advancing Thursday include Fortune Brands Home & Security, Inc. (FBHS) , up 3% to close at $21.33, Toll Brothers, Inc. (TOL) up 4.9% to $30.74, and Lennar Corp. (LEN) up 4% to $30.19 a share.
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