An Ominous Message From Centex

Centex's net orders for the quarter were 6,828 homes, a decrease of 28% from last year's second quarter. The company said the results reflected record levels of contract cancellations, driven in many cases by the inability of buyers to sell their existing homes.

East cut his full-year earnings estimate for the company to $4.42, down sharply from $5.61.

In a research note, Bank of America analyst Daniel Oppenheim said he expects Centex to lower its full-year guidance when it reports earnings later this month. The company's current profit forecast for fiscal 2007 is $7 a share. Oppenheim lowered his estimate to $3.90 from $5.75.

For fiscal 2008, Oppenheim expects $1.15.

Shares of Centex recently were down 3% to $53.45. Some analysts and investors recently have argued that builder stocks should no longer be valued on earnings but instead on price-to-book metrics.

Centex currently trades 30% above its book value. On the basis of Oppenheim's 2007 fiscal earnings estimate for the company, the stock trades at 13.7 times earnings for fiscal 2007 (which ends in late March for Centex).

Because Centex doesn't follow the standard calendar fiscal year, it began talking about 2007 earnings in late April. The news at the time served as the first peek at next year, and it spooked investors and helped lead to a rapid selloff in the sector that ended in mid-July.