7 Home-Related Stocks to Watch

NEW YORK (TheStreet) -- M/I Homes (MHO), Standard Pacific (SPF), Beazer Homes (BZH), Armstrong World Industries (AWI), D.R. Horton (DHI), Owens Corning (OC) and Ryland Group (RYL) that could rise sharply in the next year according to equity analysts.

The latest home price data from S&P/Case-Shiller suggest U.S. home prices are stabilizing.

Prices rose rose by 3.6% in the second quarter of 2011, after declining 4.1% in the first quarter>. Although recovering, prices declined 5.9% in the second quarter from the same quarter of 2010. Home prices in the U.S. are now revisiting their early 2003 levels.

We have identified seven home-related stocks that hold potential to deliver attractive returns over the next year, based on financial analysts' price targets.

The stocks are arranged in the ascending order of potential upside, based on consensus analyst price targets.

7. Armstrong World Industries makes floors and ceilings used in the construction and renovation of residential, commercial and institutional buildings.

Net sales for the second quarter of 2011 rose 3.3% from the first quarter to $748.6 million in the second quarter on improved pricing and a favorable product mix.

Operating income for the second quarter increased to $72.7 million, vs. $52.9 million in the same quarter of 2010. Net income improved to $37.9 million from $26.8 million a year earlier.

Net operating income and net income increased on the back of cost rationalization measures initiated in 2010 that resulted in lower manufacturing, selling and administrative costs in the present quarter.

Armstrong projects new home starts at an annual rate of 600,000 in the U.S. and anticipates repair and remodel activity in North America to track 2010 levels.

The average price target of analysts covering the stock is $51.40, about 28% greater than current levels. All of the analysts covering the stock give it a buy rating. Shares are trading with a price-to-earnings ratio of 13, based on 2012 earnings estimates.

6. D.R. Horton is a U.S.-based home building company with operations in 26 states and 72 metropolitan markets. The company conducts its business through six homebuilding segments and a financial services segment. Homebuilding operations contribute more than 95% toward aggregate revenue.

For the third quarter ended June 2011, net income was $28.7 million, including pretax charges of $9.9 million. Net income for the second quarter of fiscal 2011 was $27.8 million. Home building revenue was $975.4 million in the June quarter of 2011, compared to $733.1 million in the second quarter of fiscal 2011.

"Sequentially, our homebuilding revenues grew $242 million, home sales gross margins improved by 30 basis points and homebuilding SG&A decreased by approximately $10 million. Additionally, our net sales orders in the June quarter were about flat with the March quarter, reflecting a traditional seasonal demand pattern,⿝ said Donald R. Horton, the company⿿s chairman.

Forty-three percent of analysts polled by Bloomberg have buy ratings on the stock, which is trading with a P/E of 19 based on 2012 earnings estimates. On average, analysts surveyed by Bloomberg have a $13.70 price target on the stock, which is 43% greater than recent levels.

5. Ryland Group engages in the business of homebuilding and mortgage finance. The company operates through four regional segments: north, southeast, Texas and west.

Housing gross profit margins averaged 14.5% from 15.9% in the second quarter of 2010. Net loss for the second quarter of 2011 was $10.7 million, including pretax charges of $5.8 million related to inventory and write-offs. For the same period in 2010, net loss was $21.8 million.

Active communities increased to 219 compared to 181 communities for the quarter ended Mar. 2011. Backlog increased 20.3% to 1,646 units from 1,368 units in the same quarter of 2010. Cash, cash equivalents and marketable securities stood at $613.5 million at the end the quarter.

The average price target of analysts covering the stock is $17.10, 44% greater than recent levels. Forty-seven percent of analysts covering the stock give it a buy rating. Shares are trading with a P/E of 30, based on 2012 earnings estimates.

4. Owens Corning is a manufacturer of glass fiber reinforcements and building materials for residential and commercial use.

During the second quarter of 2011, net sales grew 5.3% to $1.45 billion from $1.37 billion in the second quarter of 2010. Earnings before taxes were $107 million compared with $94 million in the second quarter of 2010.

Commenting on the financials, Mike Thaman, Owens Corning⿿s CEO, said, "Given the performance of our portfolio, we have increased our 2011 estimate for EBIT to $500 million or more. This translates into adjusted earnings per share growth of more than 40% vs. 2010.⿝

On average, analysts expect the stock to rise to $44.80 in the next 12 months, 55% greater than current levels. Fifty-seven percent of analysts have buy ratings on the stock, which is trading with a P/E of 10, based on 2012 earnings estimates.

3. Standard Pacific Group is a geographically diversified builder of single-family homes with operations in markets like California, Florida, Arizona and Texas.

Excluding previously capitalized interest costs and inventory impairment charges, gross margin from home sales for 2011 second quarter was 27.9%, vs. 27.5% in the corresponding period prior year.

Selling communities grew to 157 from 127 in the second quarter of 2010. The company was able to increase communities during this period with no appreciable rise in overhead costs. The company intends to open more than 20 new communities by the year end.

For the 2011 second quarter, revenue from home sales was $204 million compared to $143.7 million in the prior quarter. Net loss improved to $10.5 million from $14.8 million in the prior quarter.

The company holds $507 million in cash with $122 million in operating cash flows.

Based on analystsâ¿¿ consensus estimate, the stock is expected to appreciate 59% over the next year.

2. Beazer Homes is a U.S.-based diversified builder.

Excluding impairments and abandonments, homebuilding gross profit margin was 17.8% compared to 12.3% in the prior quarter. Net sales for the quarter were $172 million compared to $127.5 million in the same period last year.

Net new home orders increased 23.7% from the same period prior year.

"Our emphasis on promoting the low cost of ownership of a new Beazer Home compared with both existing homes and other new homes was an important contributor to efforts,⿝ said Ian McCarthy, CEO of Beazer Homes.

On average, analysts expect the stock to gain 63% over the next year, and 56% of analysts rate Beazer a buy.

1. M/I Homes is a builder of single-family homes.

Relative to the year-ago quarter, the companyâ¿¿s selling, general and administrative expenses improved during the second quarter of 2011 to generate an eighth straight quarter of positive adjusted EBITDA. Adjusted operating gross margin improved 70 bps, sequentially.

New contracts for 2011 second quarter were up 5% to 635 from 602 in the same quarter last year. During the quarter, M/I opened four new communities and expanded presence in Texas through the acquisition of San Antonio-based TriStone Homes.

The company generated positive cash flows from its operations during the quarter with cash balance of $114 million and net debt to net capital ratio of 0.37.

All analysts polled by Bloomberg rate the stock a buy, and the average analyst price target implies the stock could gain 148% over the next year. Shares currently trade with a P/E of 20, based on 2012 earnings estimates.

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