Compass Point on Home Builders: April Data Could Disappoint vs March

May 11, 2012 9:59 AM EDT
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Price: $43.85 +0.27%

Rating Summary:
    19 Buy, 9 Hold, 0 Sell

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Today's Overall Ratings:
    Up: 30 | Down: 30 | New: 23
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Compass Point on Home Builders:

Analyst, Wilkes Graham, said, "We are reiterating our Neutral ratings on shares of Lennar (NYSE: LEN), Pulte (NYSE: PHM), Ryland (NYSE: RYL), Standard Pacific (NYSE: SPF), and Toll Bros. (NYSE: TOL) and our Sell ratings on shares of Beazer (NYSE: BZH), D.R. Horton (NYSE: DHI), Hovnanian (NYSE: HOV), and KBHome (NYSE: KBH). After a March-quarter end earnings season that exhibited impressive order growth and divergent signs of pricing power, we remain convicted that current home builder equity valuations are stretched relative to the speed at which the housing market is recovering. We are adjusting price targets higher on our Neutral-rated stocks and lower on our Sell-rated stocks.

Rational housing assumptions drive 15% growth. Based on what we believe are optimistic, but rational, assumptions for the housing market, including household formations and inventory levels including shadow supply, we make the following forecasts in our updated Compass Point Housing Model:

Single-family housing starts: 500k by year-end 2012 and 575k by year-end 2013, compared to 439k in 2011.

New Home Sales: 350k by year-end 2012 and 400k by year-end 2013, compared to 307k in 2011.

Pricing: 1-3% annual increases in national prices, with widely diverging fates among Top, Middle, and Bottom Tier housing markets

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