Thursday September 9, 1:29 pm Eastern Time
Company Press Release
SOURCE: The Wall Street Transcript
The Wall Street Transcript publishes Homebuilding Industry Report
NEW YORK, Sept. 9 /PRNewswire/ -- Four leading analysts examine the Homebuilding Industry in the latest issue of The Wall Street Transcript (212-952-7433).
In a vital review of this sector for investors and industry professionals, this 19-page report features an in-depth roundtable forum on the Homebuilding sector (15,000+ words), four leading analysts: Robert Curran of Merrill Lynch, Timothy Jones of Ryan, Beck & Co., Samuel Lieber of the Alpine Real Estate Equity Funds and Stephen Kim of Deutsche Banc Alex. Brown examine the current disparity between strong sales, revenues and margins versus the low P/Es for sector stocks, inventory levels, mobile home fundamentals, interest rate horizon, low-and-no down payment plans, pricing power and labor costs.
The expert panel explores the competitive horizon, M&A activity, growth segments, investor sentiment, management performance and investor concerns. They analyze specific sector firms, and each analyst offers their recommendations with some stocks receiving a consensus of positive opinion, with the outlook for others disputed.
After recently raising his estimates for sector stocks by 10% and watching the stocks subsequently fall 10%, Jones states, ``The P/Es are below the low multiples of the last six and a-half years virtually across-the-board. In 31 years, I've never seen the stocks so cheap with the outlook so good.'
But, while housing inventories are near an all-time 30-year low, Jones forecasts, ``We expect an inventory correction in the mobile home area that could be quite painful. There are too many retailers, with too much inventory per retailer, and an unhealthy increase in inventory at the manufacturing level. In addition to severe price cutting, the securitization market continues to be unstable with spreads widening. Our outlook is for a nine-month inventory correction. You could see mobile home shipments dropping over 10% in the coming months. Oakwood (NYSE: OH - news) intends to get rid of $50 million of inventories this quarter and another $100 million the next year. Whatever the estimates for this group are, they are too high across-the-board. This is in sharp contrast to the builders, which I believe are going to increase earnings 28% this year and 11% next year.'
Many public homebuilders are broadening product lines and price points, Curran cites, ``A prime example is Pulte Corporation (NYSE: PHM - news). Even if the entry level segment should slip a bit, some of these public companies are capable of increasing market share, perhaps offsetting a decline in industry demand in that category. Kaufman & Broad Home Corporation (NYSE: KBH - news) and M.D.C. Holdings, Inc. (NYSE: MDC - news) have redesigned homes in various markets and are now delivering product priced well below that of their competition. Market share is increasing.'
But even in the lower-priced segment, there has been a shift in demand for more perceived value in features and amenities, Lieber asserts, ``Crossman Communities (Nasdaq: CROS - news) builds basic entry level homes, yet they put cathedral ceilings in many models, adding just little touches of luxury. Obviously, more elegant bathrooms, better-appointed kitchens, preferably with eat-in facilities, add appeal at a price, and you can go up the ladder to a Toll Brothers (NYSE: TOL - news) home if you're looking for three-car garages, media rooms and spacious master suites.'
The aging of the baby boomers is causing some firms to shift focus toward building retirement communities, Curran states, ``Del Webb (NYSE: WBB - news) is the premier developer of retirement communities. U.S. Home (NYSE: UH - news) derives a substantial minority of its sales from active adult communities, which tend to be considerably smaller in scale than the retirement communities of Del Webb. More companies are, although somewhat tentatively, committing capital to this market niche. In particular, I would single out Pulte Corporation and Centex Corporation (NYSE: CTX - news).'
The panel offers recommendations about which sector stocks are most likely to reward investors.
Lieber shares his evaluation of homebuilding managements, ``Among companies that are generating superior returns, Lennar (NYSE: LEN - news) has certainly blossomed over the last few years, spinning off its commercial real estate and finance operations and acquiring several smaller homebuilders. Now it is one of the leading companies, in no small part because it has positioned itself very well in terms of its geographic mix by expanding into California several years ago with a significant operation. Ryland (NYSE: RYL - news) is a company that had stumbled, and added new top management that is gradually turning that company around.'
Singling out a manufactured housing management team, Jones adds, ``Clayton Homes (NYSE: CMH - news) is the only manufactured housing company that I am recommending. Its management does stand out. The management record is unequalled in its sector -- consistent double-digit increases in profitability every year since FY1980. The company's stock price continues to undervalue Clayton's consistency and resiliency.'
Due to the present obsession with large-cap stocks, Kim states, ``Three, four years out Centex (NYSE: CTX - news), Lennar, D.R. Horton (NYSE: DHI - news) are going to be the big cap names, and for that reason I like those stocks as well.'
Lieber concurs, ``Kaufman & Broad and D.R. Horton are quality major players. While no homebuilder trades for over 7 times earnings, some of the small caps like Beazer Homes (NYSE: BZH - news) and M/I Schottenstein Homes (NYSE: MHO - news) have p/e ratios under 5 times. I see a lot of cheap companies of quality, but if I had to pick one, it would be Lennar.'
To obtain a copy of this insightful 19-page report, see twst.com or call 212-952-7433. This special section is also included in the Industry/Services Sector of TWST Online at twst.com. Also included are the Aerospace/Defense Industry Issue at twst.com and the Automobile/Auto Parts Industry Issue at twst.com.
The Wall Street Transcript is a premier weekly investment publication interviewing market professionals for serious investors for over 35 years. Available at twst.com. TWST Online provides hundreds of free Interview excerpts. For recent recommendations by analysts and money managers visit twst.com
The Wall Street Transcript does not endorse the views of any interviewee nor does it make stock recommendations.
SOURCE: The Wall Street Transcript |
