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

Apple Inc. (NASDAQ: AAPL) Reiterated Buy and Raised Target to $770 from $730 at BofA/ML.

Celgene Corporation (NASDAQ: CELG) Cut to Hold at Auriga.

Cloud Peak Energy Inc. (NYSE: CLD) Cut to Neutral at Credit Suisse.

CONSOL Energy Inc. (NYSE: CNX) Cut to Neutral at Credit Suisse.

Dril-Quip, Inc. (NYSE: DRQ) named as Bear of the Day at Zacks.

Edison International (NYSE: EIX) Raised to Outperform at Wells Fargo.

Nokia Corporation (NYSE: NOK) Cut to Equal-weight at Barclays.

PPL Corporation (NYSE: PPL) was maintained as Buy but removed from the Conviction Buy List at Goldman Sachs.

Lennar Corporation (NYSE: LEN), PulteGroup, Inc. (NYSE: PHM), and Toll Brothers Inc. (NYSE: TOL) were all raised to Buy from Hold at KeyBanc today.

VMware Inc. (NYSE: VMW) Started as Overweight at Piper Jaffray.

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JON C. OGG

The unofficial closing bells put the DJIA down nearly 44 points to 13,197.96 (-0.33%), the NASDAQ fell more than 2 points (-0.07%) to 3,120.35, and the S&P 500 fell -0.28% or nearly 4 points to 1,412.52.

There were several analyst upgrades and downgrades today, including Micron Technology Inc. (NASDAQ: MU) started as ‘buy’ at Jefferies; Activision Blizzard Inc. (NASDAQ: ATVI) started as ‘buy’ at Stifel Nicolaus; Bank of America Corp. (NYSE: BAC) cut to ‘neutral’ at Baird; Southern Copper Corp. (NYSE: SCCO) raised to ‘overweight’ at Morgan Stanley; and Apollo Group Inc. (NASDAQ: APOL) cut to ‘neutral’ at Credit Suisse.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Apollo Group Inc. is down -8.6% at $39.48; Gol Linhas Aereas Inteligentes SA (NYSE: GOL) is up 2.7% at $7.32; Walgreen Co. (NYSE: WAG) is up 1.3% at $34.80; and Lennar Corp. (NYSE: LEN) is up 4.7% at $27.65 after posting a new 52-week high earlier today of $28.28 (more coverage here and here). After markets close today Christopher & Banks Corp. (NYSE: CBK) and Synnex Corp. (NYSE: SNX) will report earnings. Before the markets open in the morning, we’ll get earnings from Family Dollar Stores Inc. (NYSE: FDO) and the Mosaic Co. (NYSE: MOS).

Other standouts from today include the following stocks:

ISTA Pharmaceuticals Inc. (NASDAQ: ISTA) is up 7.9% at $9.04. The drug company is being acquired. More coverage here.

Opnext Inc. (NASDAQ: OPXT) is up more than 53% at $1.73. The optical equipment maker is merging with Oclaro Inc. (NASDAQ: OCLR). More coverage here.

Zhongpin Inc. (NASDAQ: HOGS) is up nearly 25% at $11.51. The Chinese food processing company has received a preliminary offer to be taken private. More coverage here.

Stay tuned for Wednesday. St. Louis Fed President James Bullard is giving a speech. We have also noted the following events on the schedule (all times Eastern):

• 7:00 a.m. – Mortgage Bankers’ Association purchase applications
• 8:30 a.m. – Durable goods orders
• 10:30 a.m. – EIA weekly petroleum status report
• 1:00 p.m. – 5-year note auction

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Paul Ausick

With about an hour to go in today’s trading session, the good news from Lennar is lifting other homebuilders including PulteGroup Inc. (NYSE: PHM), Beazer Homes USA Inc. (NYSE: BZH), and D.R. Horton Inc. (NYSE: DHI). Lennar noted that it had been able to increase its sales prices in the quarter ended in February, in almost complete opposition to the Case-Shiller index.

What could be happening is that we’re seeing a mismatch based on reported data. The Case-Shiller index includes data only through January, while Lennar’s quarterly results go through February. Most of the data on housing starts points to better news in the second half of the year, so what we might have here is a homebuilder front-running the price index.

Whatever’s happening, homebuilders look good today. Lennar is up nearly 5% at $27.66 after posting a new 52-week high earlier today of $28.28. PulteGroup is up about 4.7% at $9.20 in a 52-week range of $3.29-$9.69. Beazer is up about 4.4% at $3.45 in a 52-week range of $1.35-$4.79, and D.R. Horton is up 3.7% at $16.00 in a 52-week range of $8.03-$16.45.

Paul Ausick

About $100 million of Lennar’s revenues come from its financing operations. Of the company’s $15 million profit for the quarter, $9.4 million came from its Rialto financing segment. Operating profit from homebuilding fell year-over-year, from $35 million a year ago to $20 million this year. Homebuilding revenue in the same period a year ago totaled $467 million compared with homebuilding revenue in the 2012 first quarter of $624 million.

The company’s CEO anticipates more improvement ahead:

New sales orders in the first quarter were encouraging. We have seen the market stabilize, driven by a combination of low home prices and low interest rates, making the decision to purchase a new home more attractive, compared to the heated rental market. We recorded our strongest first quarter sales since 2008, with new orders increasing 33% year-over-year. We have been able to increase sales prices and have started to reduce sales incentives in some of our communities.

Investors appear to be happy with Lennar’s results. Shares are up about 4% in the pre-market this morning, at $27.44, which is above Lennar’s 52-week high.

Paul Ausick

The unofficial closing bells put the DJIA up more than 161 points to 13,241.93(1.23%), the NASDAQ rose nearly 55 points (1.78%) to 3,122.57, and the S&P 500 rose 1.39% or more than 19 points to 1,416.50.

There were several analyst upgrades and downgrades today, including Baker Hughes Inc. (NYSE: BHI) cut to ‘market perform’ at Wells Fargo; Micron Technology Inc. (NASDAQ: MU) cut to ‘perform’ at Oppenheimer; Safeway Inc. (NYSE: SWY) cut to ‘neutral’ at Credit Suisse; Tesla Motors Inc. (NASDAQ: TSLA) raised to ‘buy’ at Wunderlich; and Magic Investment Corp. (NYSE: MTG) started as ‘market perform’ at Keefe Bruyette Woods.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Cal-Maine Foods Inc. (NASDAQ: CALM) is down -5.7% at $39.58; and Saratoga Resources Inc. (AMEX: SARA) is up 6.9% at $7.43. After markets close today Apollo Group Inc. (NASDAQ: APOL) and Gol Linhas Aereas Inteligentes SA (NYSE: GOL) report earnings. Before the markets open in the morning, we’ll get earnings from Walgreen Co. (NYSE: WAG) and homebuilder Lennar Corp. (NYSE: LEN).

Other standouts from today include the following stocks:

Verenium Corp. (NASDAQ: VRNM) is up nearly 20% at $3.69 after posting a new 52-week high of $4.15 earlier today. The enzyme maker is selling some assets. More coverage here.

Schulumberger Ltd. (NYSE: SLB) is down -1.1% at $72.36. The oil field services giant warned on earnings. More coverage here.

A123 Systems Inc. (NASDAQ: AONE) is down about -13.4% at $1.47 after posting a new 52-week low of $1.45 earlier. The company will recall certain batteries for replacement. More coverage here.

AudioCodes Ltd. (NASDAQ: AUDC) is down -16.2% at $2.95. The network gear maker lowered its outlook. More coverage here.

Arena Pharmaceuticals Inc. (NASDAQ: ARNA) is up more than 24% at $2.99 after posting a new 52-week high of $3.19. The drug-maker has begun the process of getting a new drug to market in Europe. More coverage here.

Stay tuned for Tuesday. Federal Reserve Chairman Ben Bernanke and Boston Fed President Eric Rosengren are giving speeches. We have also noted the following events on the schedule (all times Eastern):

• 9:00 a.m. – S&P Case-Shiller housing price index
• 10:00 a.m. – Conference Board consumer confidence index
• 10:00 a.m. – Richmond Fed manufacturing index
• 11:30 a.m. – 4-week Treasury bill auction
• 2:00 p.m. – 2-year note auction

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Paul Ausick

We are offering previews and adding color if applicable on the following companies: Apollo Group Inc. (NASDAQ: APOL); GOL Linhas Aereas Inteligentes S.A. (NYSE: GOL); Lennar Corporation (NYSE: LEN); PVH Corporation (NYSE: PVH); Walgreen Co. (NYSE: WAG); Commercial Metals Co. (NYSE: CMC); Family Dollar Stores Inc. (NYSE: FDO); The Mosaic Co. (NYSE: MOS); Paychex Inc. (NASDAQ: PAYX); Red Hat Inc. (NYSE: RHT); Sanchez Energy Corporation (NYSE: SN); Teavana Holdings Inc. (NYSE: TEA); Best Buy Co. Inc. (NYSE: BBY); Pep Boys-Manny Moe & Jack (NYSE: PBY); and Research In Motion Ltd. (NASDAQ: RIMM).

Monday , March 26

Apollo Group Inc. (NASDAQ: APOL): Thomson Reuters has estimates of $0.37 EPS and $932.8 million in revenues.  Shares of the online university at around $42.50 and the 52-week range is $37.08 to $58.29.

GOL Linhas Aereas Inteligentes S.A. (NYSE: GOL) is expected to report earnings of $0.07 EPS on a translated basis from Brazilian Reals for the Latin American airline outfit.  A slowing Brazil story has not helped GOL out and at $7.50 the 52-week trading range is $5.03 to $14.35.

Tuesday, March 27

Lennar Corporation (NYSE: LEN) was soft after weaker than expected new home sales data for February, but the homebuilder is up over 100% from the lows of 2011.  At $25.75, the 52-week range is $12.14 to $27.07. Thomson Reuters has estimates of $0.04 EPS and $699.4 million in revenues.

PVH Corporation (NYSE: PVH): Thomson Reuters has estimates of $1.09 EPS and $1.5 billion in revenues.  Ay $88.40, shares are very close to the highs with its 52-week range of $51.15 to $90.64.

Walgreen Co. (NYSE: WAG) has not been a big performer of late and the $33.50 handle today compares to a 52-week range of $30.34 to $45.34. Thomson Reuters has estimates of $0.77 EPS and $18.56 billion in revenues.

Filed under: 24/7 Wall St. Wire, Calendar, Earnings, Economy, The Week Tagged: APOL, BBY, CMC, FDO, GOL, LEN, MOS, PAYX, PBY, PVH, RHT, RIMM, SN, TEA, WAG ]]>