WCI Fails [Housing Tracker]

Homebuilder Stocks 

WCI, Boscov File for Bankruptcy as Recession Concern Escalates. “WCI Communities Inc. (WCI), the homebuilder chaired by billionaire Carl Icahn, and department-store chain Boscov's Inc. filed for bankruptcy as company defaults escalated amid concern the U.S. is teetering on the brink of a recession. Moody's Investors Service: The U.S. default rate at the end of June was 2.4%, a figure that will probably rise to 5.4% by December and 6.1% through June next year. By Q2, 35 companies had failed to repay their high-yield debt, more than in the whole of 2007.” (Bloomberg, Aug. 4^th)

ETF Update: Homebuilders on the Rise? “Jim Cramer recently made a few mildly positive comments.  He noted that homebuilder stocks held the prior lows during the last sell off.  Cramer (like us) believes that the recently-passed housing bill will be important in stabilizing home prices.  He sees that happening in six months, but notes that the time to buy might come earlier.  Cramer says Centex (CTX) [is] a guide to the entire group.” (iStock Analyst, Aug. 3^rd)

Housing Bottom and Homebuilders: No Sign of Improvement. “D.R. Horton (DHI) and Pulte Homes (PHM) continue building up inventory. According to the Phoenix Business Journal, D.R. Horton started 2132 homes in the Pheonix area during H1’08, and Pulte started 1764! I think these builders are gambling that we've hit bottom… If we're not at the bottom, these builders and all those who keep adding inventory may very well be in trouble. Remember, right now, there's almost a one year inventory of homes on the market, and there's arguably little sign that the number will improve any time soon. I still have a short position in DHI, and I'm sticking to it.” (J.C. Campos in Seeking Alpha, Aug. 3^rd)

Lennar Lets Buyers Strike Back At The Pumps. “Mark Metheny, division president for Lennar (LEN): Throughout August, Lennar is running a special promotion that makes its homes even more of a value for customers. "We are giving away a Smart Car with select Lennar homes in Tampa Bay, Lakeland and Winter Haven that are purchased between Aug. 4 and Aug. 31," Metheny says. "Additionally, we are having a drawing for a Smart Car. At the end of the promotion, we will draw a name and the lucky entrant will win a Smart Car." (Tampa Bay Online, Aug. 3^rd)

Green Green And Lean. “One of Indianapolis' largest homebuilders, Beazer Homes (BZH), is responding to energy woes by including a new feature as standard in all its residential construction: Energy- and water-saving options and appliances. "Our research shows that 73% of consumers want energy-efficient homes at affordable prices. We want to offer homeowners those options," said Tony Callahan, a spokesman for Beazer. The company, with 46 Indy-area communities, builds homes priced at $90,000-$400,000.” (IndyStar, Aug. 2^nd)

Beazer Division Wins Smart Car For Top Sales. “Beazer's Charleston division won a tiny, trendy Smart car for posting the best sales nationwide in a recent "eSmart Homes" promotional campaign… To win the car, Charleston placed first of 30 divisions across the country during the five-day eSmart blitz earlier this summer. To gauge production, Beazer compared the divisions' sales with their budgets. The Charleston division's total value of homes sold was 185% of its budget… Beazer plans to take the car to promotional and civic events, such as when the staff visits schools to donate supplies.” (Charleston.net, Aug. 2^nd)

Wachovia Initiates NVR Inc. (NVR) with an Outperform. “Wachovia initiates coverage on NVR Inc. (NVR) with an Outperform rating and a $675-$700 valuation range… NVR is trading at a 49% discount to its historical price-to-book ratio. “The… only profitable builder, we believe NVR is a low-cost home producer leveraging its novel manufacturing/distribution facilities, option-only land strategy, and greater overall local market share... NVR should continue to achieve high margins and industry-leading returns while maintaining the best balance sheet, the most consistent cash flow generation, and lowest risk profile among publicly traded homebuilders. If NVR’s key, Washington, D.C. market… should show signs of recovery, or if the company takes advantage of its highly liquid, under-leveraged balance sheet to repurchase stock, shares could move into our valuation range rapidly." (Street Insider, Aug. 1^st)

M/I Homes Posts Wider Q2 Loss, To Discontinue Dividend. “M/I Homes Inc (MHO) posted a wider quarterly loss, hurt by charges, and said it will discontinue the payment of cash dividends... The company posted a second-quarter net loss of $94.1 million, or $6.72/share, compared with $42.6M, or $3.05/share, a year earlier. The net loss includes $4.14/share of non-cash valuation allowance against deferred tax assets and certain pre-tax charges of $1.77/share, among others…  [The] loss of $9.09/share, excluding items, that was wider than analysts' average estimate of a loss of $1.48/share. Revenue fell 38% to $141M, below analysts' estimate of $172.3M.” (Reuters UK, July 31^st)

M.D.C. Loses $100.7 Million in 2nd QTR. “M.D.C. Holdings’ (MDC) [Q2] orders fell 51% to 959 homes, the net aggregate value of those homes fell 57% to $279,000 and the average selling price of new orders fell 12% to $290,900. The cancellation rate… was 43%. The company ended Q2 with a backlog of 1,576 homes with an estimated sales value of $522.0 million, compared with a backlog of 4,134 homes with an estimated sales value of $1.48 billion at June 30, 2007.” (Big Builder Online, July 31^st)

Standard Pacific Reports $248.2 Million 2nd-QTR Loss  “Standard Pacific Corp. (SPF) reported a second-quarter loss of $248.2 million (-$3.82/share), including pretax impairment charges of $149.2 million, a non-cash charge of $130.9M related to deferred tax assets and a $9.1M charge related to the early retirement of debt. The loss was nearly three times the -$1.26/share expected by analysts. The company's debt-to-capitalization ratio increased to 61.9% from 55.9% at the end of Q2’07. It ended the quarter with $572.4M in cash on its balance sheet...The cancellation rate came in at 25%, down from 28% in Q2’07 but up marginally from 24% in Q1.” (Big Builder Online, July 31^st)

Toll Brothers CEO Sets Up Plan To Sell Shares--Should You Worry About Other Homebuilders' Insiders Selling Shares? “Last Tuesday, Toll Brothers (TOL) CEO Bob Toll set up a plan to sell 3 million shares of Toll's stock. Insiders selling at these homebuilders is very important to watch because the insiders' sales have proved to have great timing as the stocks have fallen in like kind in the upcoming months… Homebuilders stocks have recently gained back some of their losses, thus at these higher prices, I wouldn't be surprised to see more execs set-up 10b5-1 stock selling plans. Homebuilders I would pay attention to include: Lennar, Pulte, Centex and KB Home (KBH).” (Street Insider, July 30^th)

Ryan Homes takes over Seapine Estates in EHT. “Ryan Homes has acquired and begun building at the Seapine Estates development, rescuing the project well before the nationwide housing slump reverses. Ryan Homes has renamed the potentially 247-unit development Silver Oaks and priced new homes there from $288,000 and up. Seapine’s builder, Elliott Building Group of Langhorne, Pa., ran out of money and buyers in 2007… Ryan Homes, one of the nation's 10 largest home builders, has opened several new developments in southern New Jersey in the middle of the housing downturn even as many other builders have struggled to finish existing projects.” (Press of Atlantic City, July 30^th) 

D.R. Horton Concerns Continue. “Year-to-date, D.R. Horton, Inc. has been successful in generating cash flow, lowering land lots owned and optioned and cutting the number of homes in inventory. Also, the company announced that it would cut the quarterly dividend by half to $0.075 per share in an effort to preserve $94.5 million in annual capital. For the remainder of FY08, we expect gross margin pressure to continue from weaker average selling prices and increased incentive use. Our target price is $11.50… Unfortunately, inventory reduction from lower starts is unlikely to bring back double-digit volume growth. A high level of cancellation rates is another cause of concern.” (Zacks.com, July 30^th) 

Lennar’s Lawsuits. “Two years [ago] Lennar Corp. reported that asbestos dust had neither been monitored nor controlled during major grading and earthmoving operations on its Parcel A construction site on Hunters Point Shipyard... On June 19 a dozen Bayview–Hunters Point residents and workers sued Lennar, as well as international environmental consultant CH2M Hill and engineering consultant Gordon N. Ball, in Superior Court on behalf of their preschool and school-age children. The parents allege that their children suffered headaches, skin rashes, and respiratory ailments during Parcel A excavations, which occurred next to a predominantly African American and Latino community.” (San Francisco Bay Guardian, July 30^th) 

Lennar sells take in Richmond condos. California: “Lennar Corp. has jettisoned its ownership stake in two condominium projects near Marina Bay here… The company sold its interest in the 488-unit Marina Shores and the 224-unit Marina Cove, residential developments located in the Marina Bay area of Richmond. Both projects were launched as a venture consisting of Lennar and Emerald Fund. Kennedy Wilson bought Lennar's stake in the two condo projects, which total 712 units… In 2005, the companies spent about $60 million converting the former apartment complexes to condos after they had bought the property for $98.5M.” (Inside Bay Area, July 29^th)

 

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