Home Builders Riding Wave of Positive Data

NEW YORK (TheStreet) -- Positive economic data for the U.S. housing sector and brighter signals from Europe offered markets a glimmer of hope this Tuesday. The U.S. Commerce Department released better-than-expected November housing data with builders breaking ground for nearly 685,000 homes, up 9.3% from October and 24.3% in November 2010, surpassing economists' expectations. Building permits were up 5.7% from the previous month.

At close Tuesday, the S&P 500 Index ( SPXINDEX) gained 2.98%, while the S&P 500 Home Building Sub-Industry Index ( S5HOME INDEX) edged forward by 7.01%, beating the main index. Stocks like, PulteGroup ( PHM), KB Home ( KBH) and Meritage Homes ( MTH) advanced 10.4, 10.1% and 9.2%, respectively, in a single-day trade Tuesday.

The Architecture Billings Index rose to 52 in November from 49.4 in October, according to the American Institute of Architect. The National Association of Home Builders expects sentiment to buoy for the third straight month in December.

Based on average estimates of analysts surveyed by Bloomberg, these stocks have upsides ranging from 5% to 40%. The buy recommendation and hold guidance for these stocks is 62% and 30%, respectively.

The stocks are listed in ascending order of upside potential.

5. D.R. Horton ( DHI) is one of the largest homebuilders in the U.S. The company closed 16,695 homes for the year ended Sept. 30, 2011. Operating in 73 markets across 25 states in the East, Midwest, Southeast, South Central, Southwest and Western regions of the U.S., the company engages in the construction and sale of luxury homes. It also provides mortgage financing and title services for homebuyers through its mortgage and title subsidiaries.

The stock rose 5.7% in a single-day trade this past Tuesday closing at $12.43. On Dec. 20, Guggenheim Securities reaffirmed the stock's price target of $13, implying an upside of 4.6% from current levels. Of the 23 analysts covering the stock, 52% recommend a buy and 39% rate a hold, as per a consensus forecast of analysts polled by Bloomberg.

For the fourth quarter of 2011, DHI reported net income of $35.7 million, or 11 cents per diluted share, from negative earnings of $8.9 million in the same quarter prior year. Revenue from home sales was reported at $1.07 billion, an increase of 16% compared to $921 million from the year-earlier quarter.

Homes closed in the quarter totaled 4,987, compared to 4,281 in the same quarter of fiscal 2010. Net sale orders for the quarter totaled 4,241 homes worth $927.6 million, compared to 3,979 homes worth $817.5 million in the same quarter last year.

For the fiscal year ended Sept. 2011, the company reported net income of $71.8 million, or 23 cents per diluted share. Home building revenue for the fiscal was $3.5 billion and homes closed totaled 16,695 homes. Net sale orders for the year were 17,421 homes worth $3.7 billion. The company's order backlog of homes under contract as of Sept. 30 was 4,854 homes valued $1 billion, compared to 4,128 homes or $850.8 million for the same period preceding year.

4. Lennar Corporation ( LEN) is a leading homebuilder and provider of financial services. The company builds affordable, move-up and retirement homes under the Lennar brand. It operates in four business segments: Homebuilding East, Homebuilding Central, Homebuilding West and Homebuilding Houston. Its financial services segment provides mortgage financing, title insurance and closing services for both buyers of the company's homes and others.

Lennar rallied 6.3% in one-day trading on Tuesday and closed at $19.68. On Dec. 20, Guggenheim Securities re-affirmed the stock's price target at $22, implying an upside of 11.8% from current levels. Of the 23 analysts covering the stock, 52% recommend a buy and 43% rate a hold, Bloomberg reports.

Lennar reported total revenue of $820 million in the third quarter of 2011. Net earnings attributable to the company stood at $20.7 million or 11 cents for the quarter. Home building revenue stood at $711 million with sales of homes revenues coming in at $700.6 million, up from $697.4 million. New home deliveries were 2832 homes. New orders were up 11% to 2914 homes from the third quarter of 2010. Backlog was 2519 homes, up 16% from same quarter prior year.

Recently, Lennar announced that the company is expanding its homebuilding operations into the Pacific Northwest in both the Seattle and Portland markets by acquiring 650 finished home sites. Through the deal, the company expects to deliver about 200 homes in the second half of 2012.

3. Beazer Homes ( BZH) is a diversified homebuilder with active operations in 16 states. The company operates in three segments: Homebuilding West, Homebuilding East and Homebuilding Southeast, and engages in the design, sale and building of single-family and multi-family homes.

The stock rallied 15.1% in one-day trading Tuesday and closed at $2.44. Guggenheim Securities has a buy rating on it with the price target of $3, implying upside of 23% from current levels. Of the 11 analysts covering the stock, 55% recommend a buy and 27% rate a hold, as per a consensus forecast of analysts polled by Bloomberg.

For the third quarter 2011, BZH reported total revenue of $335 million, vs. $269 million in the same quarter fiscal 2010. Gross profit margin for the quarter was 7.3% compared with 1.5% in the previous year's quarter. Revenue from home building increased 18.5% to $313.8. Total new orders stood at 1006 homes, up 33% from 2010's same quarter. Total home closing also increased 23% to 1376 homes from the same quarter prior year.

For full year 2011, Beazer Homes reported total revenue of $742 million. Revenue from home building operations stood at $712.7 million for the year. Total new orders and total home closing for the full year stood at 3927 homes and 3249 homes, respectively. Overall backlog from continuing operations was 1,450 homes with a sales value of $334.5 million, compared to 772 homes with a sales value of $184.7 million as of Sept. 30, 2010.

During the year, the company launched its Pre-owned Home Division, which acquires, improves and rents out recently built, previously-owned homes in select markets where the company has homebuilding operations.

2. Standard Pacific ( SPF) is a geographically diversified builder of single-family attached and detached homes, building more than 114,000 homes since its inception. The company constructs homes in a wide range of prices and sizes targeting a range of homebuyers. The company operates in two businesses: homebuilding and financial services, and has operations in major metropolitan areas in California, Florida, Arizona, the Carolinas, Texas, Colorado and Nevada.

Standard Pacific gained 9.4% in one-day trading this Tuesday and closed at $3.13. Raymond James has a neutral rating on the stock with the price target of $4.16, implying 32.9% upside from current levels. Of the 11 analysts covering the stock, 50% recommend a buy and 40% rate a hold, as per a consensus forecast of analysts polled by Bloomberg.

For the third quarter of 2011, the company reported 16.9% rise in its home sales revenue to $241.3 million, compared to $206.5 million in the previous year's quarter, attributable to a 16% increase in new home deliveries to 697 homes. New orders for the third quarter increased 38% to 764 homes from the 2010 third quarter. Order backlog for homes increased to 848 homes or $304.8 million, vs. $214.2 million or 605 homes in the previous year's third quarter.

The company recently organized grand openings of its four brand single family home Sagewood at Blackstone in the highly desirable El Dorado Hills area. It has also unveiled Alcott, a brand new home in one of the most up market areas of Orange County.

Standard Pacific has inked a contract to build more than 1000 residential units and 100,000 square feet of commercial space for $125 million in the heart of the Double Oaks mixed-income community.

1. M/I Homes ( MHO) is a builder of single-family homes. The company has so far delivered over 79,500 homes under the trade names M/I Homes, Showcase Homes and TriStone Homes. It operates in two segments: homebuilding and financial reporting.

M/I Homes rose 13% in one-day trading this Tuesday and closed at $10.03. Guggenheim Securities has a buy rating on the stock with a price target of $14, implying upside of 39.6% from current levels. Analysts covering the stock recommend a buy on it, according to data compiled by Bloomberg.

The company's third quarter 2011 total revenue was reported at $141.6 million, up 4.42% from $135.6 million in the previous year's same quarter. Total home building revenue grew 4.92% to $138.7 million from $132 million in same quarter of 2010.

New contracts totaled 587, up 20% from 489 in the year-ago period. Homes delivered in the third quarter were 582, compared to 515 in 2010 third quarter. Backlog of homes increased to 838 homes, up 16% from 722 homes in the third quarter of 2010.

M/I homes Charlotte has created a fun, innovative iPhone app that allows to connect, search and share information on M/I Homes communities in Charlotte and neighboring cities. The free app is geared towards both consumers and brokers.

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