Citi Analyst's (Stephen Kim) Flip-Flop Underscores Housing's Challenges
DOW JONES NEWSWIRES
November 26, 2007 3:23 p.m.
By Dawn Wotapka
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--It looks like analyst Stephen Kim changed his mind.
In early October, Kim, a high-profile Citi Investment Research analyst, seemed bullish on the battered home-builder sector, even slapping a "buy" on some companies. But in a note made available Monday, he said "we do not expect there to be sufficient data (allowing) for optimism until the second quarter of 2008."
He downgraded builders including Centex Corp. (CTX), Lennar Corp. (LEN) and Pulte Homes Inc. (PHM) from buy to hold, and Meritage Homes Corp. (MTH) from hold to sell.
The news dragged down the stocks: Centex was recently down 6.2%, Lennar fell 4.8% and Pulte dropped 2.2%. Meritage slid 5.1%.
In October, Kim, ranked one of the top analysts for the home-builder sector, shocked the industry when he upgraded builders including Centex, Pulte and Lennar to buy from hold and noted "we don't expect any of the builders to move much lower over the near-term." At the time, he expected some of the larger-cap names and those with the strongest balance sheets to rally as much as 50% in the next few months.
"It is precisely when things have gotten this bad that the stocks start looking good," he had noted. Many interpreted the note as Kim's declaring the sector had hit bottom, sparking an industry-wide frenzy that temporarily boosted a handful of builder stocks.
But the sector's downward spiral has only continued since then - making the bottom impossible to predict for anyone. Builders, desperate to boost cash flow before the new year, have continued holding fire sales to move inventory as they recorded dramatic multi-million-dollar impairments.
But, buyers are staying on the sidelines, fearful of falling prices, tightened mortgage requirements and a glut of unsold existing homes. Builders are reporting anemic traffic and high cancellation rates, just as a wave of foreclosures has begun hitting the market.
Already Levitt & Sons, Levitt's (LEV) home-building subsidiary, filed for bankruptcy protection and Tousa Inc. (TOUS) is fighting to stay afloat.
Industry watchers expect continued trouble for all builders: The sector isn't likely to show signs of life anytime soon.
"We're not going to see anything that the world at large will say 'Hey, things are getting better' until at least late next year," said Jim Wilson, an analyst with JMP Securities. "There will be lots of questions throughout next year whether we're near bottom or at the bottom. We're definitely not there." |
