Standard Pacific: Year End Review Portends End for Shareholders

Standard Pacific (SPF) is down 84% since I initiated coverage on March 30, 2007. (Red S indicates blog posts where "sell" is reiterated):

In my first SPF post, I talked about how the assets on the balance sheet were greatly overvalued, and would require significant further writedowns. I also brought up the issue of the two layers of financial leverage thanks to the joint-venture deals.

Also, this observation proved to be an understatement:

And when land values fall, they fall hard. They are a bet on home prices and builder profit margins.

I grant that the old JV land, and the old land owned (if any), are undervalued on the books. But my suspicion is that the amount of that land is dwarfed by the way-overpriced land.

On October 3, I questioned the reasoning behind a huge homebuilder rally sparked by Citigroup analyst Stephen Kim. Sure enough, that was not the bottom for the homebuilders.

This is an industry suffering from huge over-investment, and it needs a restructuring.

I am still short Standard Pacific, and I believe that their common stockholders will be wiped out within one year from today.

Comments

[Prince of W...:]

As mortgage resets continue to occur leading more people in option ARM mortgages to default more supply is going to come on to the market to compete with new homes being built by SPF. Furthermore, due to tighter lending standards there will be a smaller supply of buyers that can qualify to buy homes from SPF.

2007 Dec 29 06:48 PM