The country’s largest homebuilders have been improving a little in the first quarter, and that improvement is expected to increase in the second half of the year. D.R. Horton Inc. (NYSE: DHI), PulteGroup Inc. (NYSE: PHM), Lennar Corp. (NYSE: LEN), Hovnanian Enterprises Inc. (NYSE: HOV), Toll Brothers Inc. (NYSE: TOL), NVR Inc. (NYSE: NVR), KB Home (NYSE: KBH) and other builders still face headwinds from falling prices as distressed sales continue.

Last week’s report from the National Association of Realtors indicated that existing inventories have continued to decline, a good sign for homebuilders. There has been a large increase in sales of existing homes to investors and private equity firms who plan to rent out the homes to all those new households. As the inventory declines, prices could begin to rise again, until those homeowners who want to sell finally see their chance (call it ‘pent-up supply’).

D.R. Horton, which released its quarterly results today, posted better than expected EPS and revenue, with EPS coming in a $0.13 on total revenue of $935.6 million. The consensus estimates had called for EPS of $0.04 on revenue of $853.4 million. Horton’s sales, closings, and backlog all finished the quarter with double-digit growth year-over-year. That’s fine, of course, but the market for new houses in the first quarter of last year was pretty awful, so that puts some perspective on this year’s spurt.

Here’s a quick look at the other builders and their most recent reports and expectations for the next quarter.

PulteGroup Inc. (NYSE: PHM) is scheduled to report earnings on Thursday. The consensus estimate calls for an EPS loss of -$0.03 on sales of $836.6 million. In the same period a year ago the company posted an EPS loss of -$0.10. PulteGroup is currently expected to post EPS of $0.04 in its June quarter and full-year EPS of $0.22, with about half that expected in the third quarter. The company’s shares are up nearly 33% since January and up 7.6% for the last 12 months.

Lennar Corp. (NYSE: LEN) posted EPS of $0.08 for its quarter ended in February, double the consensus estimate. For the quarter ending in May, the company is expected to put up EPS of $0.17 on revenue of $883.8 million, and for the full year, EPS is forecast at $0.83. PulteGroup’s shares are up about 31% since the beginning of the year and up more than 36% in the past year.

Hovnanian Enterprises Inc. (NYSE: HOV) has had a rough few years. In its most recent quarter, the company posted an EPS loss of -17% and the consensus estimate for the quarter ending in April is for an EPS loss of -$0.32. For the full-year the company is expected to post an EPS loss of -$1.02. Year-to-date shares are up about 37%, but for the past 12 months shares have lost nearly -44%.

Toll Brothers Inc. (NYSE: TOL) posted an EPS loss of -$0.02 in its January quarter, but the consensus estimate for the April quarter calls for EPS of $0.03. For the full-year, the forecast is for EPS of $0.33, with about half of that coming in the company’s fourth quarter. Year-to-date and for the past 12 months Toll Brothers is up about 17%.

NVR Inc. (NYSE: NVR) reported first quarter EPS of $3.90 last week, below the consensus estimate of $4.16. For the June quarter the company is expected to show EPS of $8.80 and for the full year EPS is expected to come in at $33.87. NVR’s shares are up about 12.8% since the beginning of the year, and for the past 12 months shares are up 6.7%.

KB Home (NYSE: KBH) reported an EPS loss of -$0.59 in its first quarter, about 2.5x the consensus estimate. For the May quarter the EPS loss is estimated to be -$0.33, an improvement of nearly 60% from the same period a year ago. KB Home’s shares are up 16.8% year-to-date, but off more than -31% in the past 12 months.

D.R. Horton opened up 1.5% this morning, at $15.61 in a 52-week range of $8.03-$16.45.

The S&P Homebuilders ETF (AMEX: XHB) opened lower this morning at $20.23 in a 52-week range of $12.22-$21.98.

Paul Ausick

The National Association of Home Builders reported that home builder confidence dropped to 25 from the prior month’s reading of 28 and that marked the first drop in seven months. Dow Jones was calling for a reading of 28 and Bloomberg was calling for a 1 point gain to 29 in April.

Here is where the problem is: the stronger interest from consumers has not matured into many more deals closing.  Buyers are still having trouble closing on a mortgage and some buyers are opting out ahead of a deal closing.  Investors also need to be aware that it takes a reading of 50 before the general consensus is that housing is considered favorable versus cautious and we are now going on six-years of the negative readings.

Lennar Corp. (NYSE: LEN) is down 1.6% at $25.69; KB Home (NYSE: KBH) is down 1.3% at $7.95; DR Horton Inc. (NYSE: DHI) is down 1.2% at $14.66; and PulteGroup, Inc. (NYSE: PHM) is down 1.3% at $8.43.  Toll Brothers Inc. (NYSE: TOL) is today’s standout stock with a gain of 2.5% at $23.51.

There is another problem here with the reading in that all three components of the index were lower.  Traffic was ratcheted down, as was current sales and future sales expectations.  Today’s news does need to be segregated from the entire housing market.  Builders are competing with existing home sales and with foreclosures or other distressed housing sales.

Mortgage rates are still close to record lows.  That cannot last forever and at some point you would have to ask what happens to the affordability if the 30-year mortgage rates rose 100 or 150 basis points.

To prove that the housing market may be fragmented despite the drop in builder sentiment, take a look at the retail segment: The Home Depot, Inc. (NYSE: HD) is up almost 1% at $51.45 and it hit a 52-week high of $51.80 today.  Lowe’s Companies, Inc. (NYSE: LOW) is up 0.7% at $31.90 and shares also hit a new year high as well.

Builders may be pessimistic, but they are competing with the existing home sales perhaps harder than ever now.

JON C. OGG

Having ended the first quarter with a value of homes in backlog 30% greater than the year before, and with increases in all four regions of the business, we see signs that the housing market is recovering. This modification in the dividend will help us to take advantage of growth opportunities while continuing KB Home’s 25-year tradition of paying quarterly dividends to its stockholders.

In other words, KB Home needs the cash more than shareholders do.

Shareholders don’t seem to mind either. Shares of KB Home are up 3.3% at $8.48 in the pre-market, in a 52-week range of $5.02-$13.12.

Paul Ausick

We expect foreclosure activity to pick up as the year progresses, adding additional pressure to prices and new home sales. We think growth in housing will be muted, below consensus expectations.

Homebuilders like Pulte, D.R. Horton Inc. (NYSE: DHI), KB Home (NYSE: KBH), and M/I Homes Inc. (NYSE: MHO) are all up between 22% and nearly 44% since the beginning of the year, with most peaking in mid-March. The SPDR S&P Homebuilders ETF (NYSE: XHB) is also up nearly 25% so far this year. Today, all are down more than -3.5% on the CapIQ note.

Shares of PulteGroup are down -5% at $9.00 in a 52-week range of $3.29-$9.69. That 52-week high was set just two days ago, on an earnings report from another homebuilder that sent most sector stocks to or near annual highs, even though the S&P Case-Shiller housing price index came out on the same day with a poor report on house prices.

Paul Ausick

The unofficial closing bells put the DJIA up nearly35 points to 13,080.73 (0.27%), the NASDAQ rose nearly 5 points (0.15%) to 3,067.92, and the S&P 500 rose 0.31% ormore than 4 points to 1,397.11.

There were several analyst upgrades and downgrades today, including Aetna Inc. (NYSE: AET) cut to ‘neutral’ at Goldman Sachs; Altria Group Inc. (NYSE: MO) raised to ‘outperform’ at Wells Fargo; Monster Worldwide Inc. (NYSE: MWW) raised to ‘outperform’ at Baird; Reynolds Aluminum Inc. (NYSE: RAI) cut to ‘market perform’ at Wells Fargo; and Zynga Inc. (NASDAQ: ZNGA) started as ‘underperform’ at Needham.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Darden Restaurants Inc. (NYSE: DRI) is down -1.9% at $50.85; Dialogic Inc. (NASDAQ: DLGC) is up almost 95% at $1.40; Accenture plc (NYSE: ACN) is up 2% at $64.79 after posting a new 52-week high of $64.88 earlier today; Bacterin International Holdings Inc. (NASDAQ: BONE) is down -26% at $2.49; and Wet Seal Inc. (NASDAQ: WTSLA) is down -7.9% at $3.27.

Other standouts from today include the following stocks:

KB Home (NYSE: KBH) is down more than 9% at $10.20. The homebuilder posted weak earnings and said that orders were down. More coverage here.

KIT Digital Inc. (NASDAQ: KITD) is down more than -23% at $6.25 after posting a new 52-week low this morning of $5.99. The video technology company is going through a management shake-up. More coverage here.

Cost Plus Inc. (NASDAQ: CPWM) is up more than 16% at $18.62 after hitting a new 52-week high of $18.98 earlier today. The company reported good earnings and offered an upbeat forecast. More coverage here.

Peabody Energy Corp. (NYSE: BTU) is down about -0.50% at $30.39. The coal miner said estimates would come in at the lower end of the forecast range. More coverage here.

Plug Power Inc. (NASDAQ: PLUG) is down more than -4% at $1.35. The company had a secondary offering of 1.95 million shares today. More coverage here.

Stay tuned for Monday. Federal Reserve Chairman Ben Bernanke and Philadelphia Fed President Charles Plosser are giving speeches. We have also noted the following events on the schedule (all times Eastern):

• 8:30 a.m. – Chicago Fed national activity index
• 10:00 a.m. – Pending home sales index
• 10:30 a.m. – Dallas Fed manufacturing survey
• 11:30 a.m. – 3- and 6-month Treasury bill auction

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Have a great weekend!

Paul Ausick

The worse news for the builder is that orders are down -8% from 1,302 a year ago to 1,197. The company said gross orders were up, but that the cancellation rate rose from 29% to 36% year-over-year. The order backlog is up to 2,203 new homes valued at $460.3 million.

The company did not have anything new to add to the housing recovery story:

Reflecting the improving trends in the economy, including recent job growth and higher consumer confidence, we are seeing signs that the overall housing market is stabilizing and beginning to recover. The pace of the recovery is uneven, however, with certain local markets showing greater strength and more normalized activity than other areas where a rebound will take longer to manifest. We expect that the housing market in general will gradually strengthen as the economy continues to advance.

KB Home’s shares are down about -15% in the pre-market, at $9.57 in a 52-week range of $5.02-$13.60.

Paul Ausick

Apple Inc. (NASDAQ: AAPL) has seen targets raised this morning by Oppenheimer to $700 and by UBS to $675; see the strange downgrade from Thursday.

BlackRock, Inc. (NYSE: BLK) Cut to Hold at Deutsche Bank.

Buffalo Wild Wings, Inc. (NASDAQ: BWLD) Cut to Neutral at Wedbush.

Coach. Inc. (NYSE: COH) Raised estimates and target to $83 from $75 at Credit Suisse; Started as Buy with $90 target at Argus.

Corn Products International Inc. (NYSE: CPO) named as Value stock of the day at Zacks.

General Motors Co. (NYSE: GM) Cut target to $29 from $30 at Jefferies.

KB Home (NYSE: KBH) named Bear of the Day at Zacks.

The Kroger Company (NYSE: KR) named as Bull of the Day at Zacks.

Microsoft Corporation (NASDAQ: MSFT) Raised to Buy with $39 target at Argus.

Morgan Stanley (NYSE: MS) Cut to Hold at Deutsche Bank.

Northern Trust Corporation (NASDAQ: NTRS) Started as Neutral with $49 target at BofA/ML.

Red Hat Inc. (NYSE: RHT) Cut to Equal-weight at Morgan Stanley.

SBAC Communications Corporation (NASDAQ: SBAC) named as Top Pick at Credit Suisse.

Synovus Financial Corporation (NYSE: SNV) Cut to Neutral at Credit Suisse.

TD Ameritrade Holding Corporation (NASDAQ: AMTD) Cut to Hold at Deutsche Bank.

Veolia Environnement (NYSE: VE) Raised to Neutral from Sell at UBS.

If you enjoyed the top analyst upgrades and downgrades, you can join our free email newsletter that includes analyst summaries each morning sent right to your inbox.  We also cover top issues such as IPOs, special financial exclusives, mergers and more. Sign up in the box below.

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JON C. OGG

Read American Companies Running Out of Cash

Running a business just with cash on hand cannot continue forever if at some point losses cannot be turned into profits. Eventually, cash must flow into a business at a greater rate than it leaves or the business will face extinction. That is even true if a company sells assets, which will eventually run out, too.

In the early stages of the Internet, revenue generation was a key problem as many websites did not have a tangible product, let alone profits, to support the multi-million or billion dollar valuations. Many of these companies indeed ended up in the graveyard when the cash ran out and the dot-com bubble burst.

Fast forward a few years and Wall Street once again faced a similar situation. The recession, which officially started in 2007, has placed financial strains on many businesses. When revenue declines are not met with the same reduction in spending, they can lead to negative cash flow. Companies can take short-term measures to handle cash flow problems until conditions improve through borrowing or equity issues. However, poor market conditions make it harder for troubled companies to borrow. Businesses, even large ones such as Eastman Kodak and American Air parent AMR, without the capital to make it through an extended stretch of weakened economic conditions, have fallen into bankruptcy.

With that in mind, we wanted to see which companies today are burning through cash at a rate that should concern shareholders.

Capital IQ provided 24/7 Wall St. with a list of 38 non-financial companies that had a negative burn rate. That is, cash from operations in the latest 12 months was negative at these companies. Capital IQ calculated the monthly burn rate by dividing this annual number by 12. Next, the number of months before cash runs out was calculated by dividing the cash, cash equivalents and short-term investments by the monthly burn rate. We took a closer look at each company to find out if the numbers were misleading or if the company could indeed be facing serious liquidity problems.

Here are the seven companies that would run out of cash during the next 18 months based on their last 12-month burn rate.

The unofficial closing bells put the DJIA up nearly 38 points to 12,959.71 (0.29%), the NASDAQ fell nearly 5 points (-0.16%) to 2,983.66, and the S&P 500 rose 0.02% or less than 1 point to 1,371.09.

There were several analyst upgrades and downgrades today, including Time Warner Inc. (NYSE: TWX) cut to ‘neutral’ at Janney Capital; Walt Disney Co. (NYSE: DIS) raised to ‘buy’ at Janney Capital; Pepsico Inc. (NYSE: PEP) reiterated as ‘buy’ at Gabelli; KB Home (NYSE: KBH) raised to ‘overweight’ at Barclays; and First Solar Inc. (NASDAQ: FSLR) maintained as ‘hold’ by target price cut to $30 at Canaccord Genuity.

Earnings reports since markets closed last Friday have led to some price changes as of the last half hour of trading today: Douglas Dynamics Inc. (NYSE: PLOW) is up 1.7% at $13.16; Fuel Cell Energy Inc. (NASDAQ: FCEL) is up 10% at $1.65; NN Inc. (NASDAQ: NNBR) is down -7.2% at $7.83; Velti plc (NASDAQ: VELT) is up 24.6% at $12.24; Hilltop Holdings Inc. (NYSE: HTH) is up 2.4% at $8.41; Oil-Dri Corporation of America (NYSE: ODC) is up 1.6% at $20.25; and Middleby Corp. (NASDAQ: MIDD) is up 5% at $98.21 after posting a new 52-week high today of $101.72.

Other standouts from today include the following stocks:

Tudou Holdings Ltd. (NASDAQ: TUDO) is up 155% at $39.26 after posting a new 52-week high of $42.81. The Chinese online video company is merging with competitor Youku Inc. (NYSE: YOKU). More coverage here.

Pacific Capital Bancorp (NASDAQ: PCBC) is up 57% at $45.03 after posting a new 52-week high of $45.45 earlier this morning. The bank holding company is being acquired by Union Bank for $1.5 billion ($46/share).

Anthera Pharmaceuticals Inc. (NASDAQ: ANTH) is down more than -45% at $3.51 after posting a new 52-week low of $3.08 earlier this morning. The drug company has unexpectedly cancelled a heart drug trial because the drug does not work.

Tranzyme Inc. (NASDAQ: TZYM) is down nearly -42% at $2.98 after posting a new 52-week low of $1.68 earlier. The company’s bowel drug failed a phase III drug trial.

Clean Diesel Technologies Inc. (NASDAQ: CDTI) is up about 64% at $5.09. The biofuel maker reported a net profit for the fourth quarter, where a net loss was expected.

Stay tuned for Tuesday. We have noted the following events on the schedule (all times Eastern):

• 7:30 a.m. – National Federation of Independent Businesses small business confidence index
• 8:30 a.m. – Retail sales
• 10:00 a.m. – Business inventories
• 11:30 a.m. – 4-week Treasury bill auction
• 1:00 p.m. – 10-year Treasury note auction
• 2:15 p.m. – Federal Reserve FOMC meeting announcement

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Paul Ausick

Allscripts Healthcare Solutions, Inc. (NASDAQ: MDRX) Started as Outperform at Credit Suisse.

Approach Resources Inc. (NASDAQ: AREX) reiterated Buy and raised target to $44 at Canaccord Genuity.

First Solar, Inc. (NASDAQ: FSLR) Maintained Hold but cut target to $30 at Canaccord Genuity.

Freescale Semiconductor (NYSE: FSL) Raised to Outperform at RBC.

Jinko Solar Holding Co. (NYSE: JKS) maintained Neutral but raised target to $10 at Credit Suisse.

K.B. Home (NYSE: KBH) Raised to Overweight at Barclays.

Kroger Co. (NYSE: KR) named as Value stock of the day at Zacks.

Oracle Corporation (NASDAQ: ORCL) Cut to Hold at Jefferies.

Pepsico, Inc. (NYSE: PEP) Reiterated Buy at Gabelli.

Quality Systems, Inc. (NASDAQ: QSII) Started as Neutral at Credit Suisse.

Suntech Power Holdings Co.. Ltd. (NYSE: STP) Cut estimates at Credit Suisse.

Time Warner Inc. (NYSE: TWX) Cut to Neutral at Janney Capital.

Veolia Environnement (NYSE: VE) Raised to Overweight at Morgan Stanley.

Walt Disney Co. (NYSE: DIS) Raised to Buy at Janney Capital.

If you enjoyed the top analyst upgrades and downgrades, you can join our free email newsletter that includes analyst summaries each morning sent right to your inbox.  We also cover top issues such as IPOs, special financial exclusives, mergers and more. Sign up in the box below.

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JON C. OGG