M.D.C. Still in Doghouse

M.D.C. Holdings(MDC) traded down Tuesday as investors couldn't get excited about a decent upside in the homebuilder's third-quarter earnings report and instead focused on the latest inflationary data showing a spike in producer prices.

M.D.C., which warned investors last month to expect a lackluster performance in the most recent period, earned $121 million, or $2.62 a share, in the three months to Sept. 30, up from $105.1 million, or $2.36 a share, a year ago. Sales rose 14% from last year to $1.17 billion.

The Thomson First Call mean estimate for the quarter called for earnings of $2.56 a share on sales of $1.16 billion. M.D.C. also reiterated full-year guidance for earnings above the mid-September Wall Street estimate of $10.44 a share. Analysts have since revised their forecasts up to an average $10.59 a share.

The entire homebuilding sector fell Tuesday on concerns that the Fed will remain focused on rising interest rates to combat inflation. The producer price index jumped 1.9% last month, the biggest jump since January 1990 and above the estimate of 1.1%.

Part of the decline also may have stemmed from a surprisingly weak earnings report and outlook from American Standard (ASD), which outfits new homes with kitchen and bath fixtures.

Tuesday afternoon, M.D.C. shares slipped 1.3% to $69.23, while the Philadelphia Housing Sector Index fell 2.5%. Fellow builder NVR(NVR), which reported third-quarter earnings Tuesday morning that missed Wall Street estimates, fell 6.8% to $51.76.

"(Investors) like the company-specific information from M.D.C., but they're concerned that the PPI is another point for the bears (who believe) rates are going higher and housing is going to get crunched," says Lawrence Horan, an analyst with Janney Montgomery Scott, which doesn't provide investment banking services to M.D.C.

But Horan remains a bull on the sector and has buy ratings on all of the homebuilders he covers. "I believe that the numbers we're seeing and the concerns about inflation are temporary," he says. "It's something that will go away in three months, six months, maybe less. It's all about the damage the storms have done. There's got to be a lot of bad news priced into MDC."