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 up nearly 20 points to 13,145.51, the NASDAQ fell by 9.6 points to 3,095.36, and the S&P 500 fell 2.29 to 1,403.26.

There were several analyst upgrades and downgrades today, including Amazon.com Inc. (NASDAQ: AMZN) started as ‘buy’ at ThinkEquity; Apollo Group Inc. (NASDAQ: APOL) cut to ‘hold’ at Argus; HollyFrontier Corp. (NYSE: HFC) cut to ‘neutral’ at Credit Suisse; Las Vegas Sands (NYSE: LVS) reiterated as ‘buy’ and price target raised to $65-$67 at BofA/ML; and Verizon Communications (NYSE: VZ) cut to ‘neutral’ at Baird.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Mosaic Co. (NYSE: MOS) is down -4.7% at $55.49; Red Hat Inc. (NYSE: RHT) is up 18.7% at $61.02 after posting a new 52-week high of $61.37 earlier today (more coverage here); Sanchez Energy Corp. (NYSE: SN) is down -2.5% at $22.01; Shaw Group Inc. (NYSE: SHAW) is up 3.9% at 32.05; and Best Buy Co. Inc. (NYSE: BBY) is down -6.6% at $24.86 (more coverage here). After markets close today China Ming Yang Power Group Ltd. (NYSE: MY), Research in Motion (NASDAQ: RIMM) (our coverage here), and Finish Line Inc. (NASDAQ: FINL) will report earnings.

Other standouts from today include the following stocks:

PulteGroup Inc. (NYSE: PHM) is down -2.5% at $9.24. The homebuilder was downgraded to ‘strong sell’ at S&P Capital IQ. More coverage here.

Chelsea Therapeutics International Ltd. (NASDAQ: CHTP) is down more than -28% at $2.63. The FDA rejected the company’s low blood pressure drug. More coverage here.

Millennial Media Inc. (NYSE: MM) concluded its IPO today at $24.74, up from the initial price of $13/share. Shares traded as high as $27.90 earlier in the day. More coverage of the recent IPO market here.

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

• 8:30 a.m. – Personal income and spending report
• 9:45 a.m. – Chicago purchasing managers’ index
• 9:55 a.m. – Reuters/University of Michigan consumer sentiment index

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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

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

We have two homebuilder earnings due from Beazer Homes USA Inc. (NYSE: BZH) and PulteGroup, Inc. (NYSE: PHM).  Other key earnings to watch will be from the following: Blackstone Group L.P. (NYSE: BX); Boston Scientific Corporation (NYSE: BSX); CME Group Inc. (NYSE: CME); Dow Chemical Co. (NYSE: DOW); Genworth Financial Inc. (NYSE: GNW); Gilead Sciences Inc. (NASDAQ: GILD); International Paper Co. (NYSE: IP); Kellogg Co. (NYSE: K); MasterCard Inc. (NYSE: MA); Merck & Co. Inc. (NYSE: MRK); Royal Caribbean Cruises Ltd. (NYSE: RCL); Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT); Trimble Navigation Ltd. (NASDAQ: TRMB); Vertex Pharmaceuticals Inc. (NASDAQ: VRTX); YRC Worldwide Inc. (NASDAQ: YRCW).

We have included Thomson Reuters consensus estimates on each company.  On most we have included pricing data and/or other bits of color for traders to consider.

We have two different homebuilders on deck to report.  Beazer Homes USA Inc. (NYSE: BZH) is expected to post -$0.36 EPS on $211.4 million in sales and we would watch cancellation rates on contracts as well as the quality of the earnings.  Second is PulteGroup, Inc. (NYSE: PHM) with an expected positive earnings of $0.07 EPS on $1.14 billion in sales.  Pulte’s cancellation rates and quality of earnings will also have to be monitored.

Blackstone Group L.P. (NYSE: BX) will show private equity wealth and earnings in the morning.  The firm is expected to report earnings of $0.38 EPS on revenues of $986.75 million.

Boston Scientific Corporation (NYSE: BSX) has been down and out for longer than any current and past holder would like to consider.  Thomson Reuters has estimates of $0.08 EPS on $1.91 billion in sales.

CME Group Inc. (NYSE: CME) is expected to report earnings of $3.71 EPS and $754 million in sales before the market opens.  With a possibility of a state-relocation and the ongoing pressure of exchange mergers we would be watching this one.  At roughly $244.50, the 52-week trading range is $224.69 to $317.27.

Dow Chemical Co. (NYSE: DOW) is expected to turn in earnings of $0.30 EPS on $14.19 billion in sales.  The report is due in the morning.

Genworth Financial Inc. (NYSE: GNW) is expected to report earnings of $0.19 EPS on $2.58 billion in sales.  The shares are now up over 60% from the lows of the last year and the stock still remains pressured due to the mortgage insurance overhang that has been in place for quite some time.

Gilead Sciences Inc. (NASDAQ: GILD) has shocked the market by outperforming despite what appears to be a bad use of effort and capital in the large acquisition.  Still, shares hit a new 52-week high on Wednesday.  Thomson Reuters has estimates of $1.05 EPS and $2.18 billion in sales. 

International Paper Co. (NYSE: IP) is close to being within striking range of a 52-week high and it pays well above a 3% yield today.  Thomson Reuters has estimates of $0.61 EPS and $6.5 billion in sales.

Kellogg Co. (NYSE: K) is lagging and actually close to a 52-week low with shares around the $49.50 mark. The estimates are $0.63 on $2.99 billion in sales.  The bar is set very low here.

MasterCard Inc. (NYSE: MA) will show just what the interchange fee problems look like, but that is not fully reflected at all in current numbers.  The consensus estimates are $3.92 EPS and $1.73 billion in sales. With shares around $357 some are concerned over valuations here.

Merck & Co. Inc. (NYSE: MRK) is reporting early Thursday morning and the company’s higher dividend hike has shares trading very close to 52-week highs with a price of close to $38.70 andf a 52-week range of $29.47 to $39.43.  Estimates are $0.95 EPS and $12.53 billion in sales. To show just how low growth is the estimates of $3.76 EPS and $48.23 billion in sales for all of 2011 are only expected to be $3.83 EPS on $47.62 billion in sales for all of 2012.

Royal Caribbean Cruises Ltd. (NYSE: RCL) may or may not release.  With its rival’s disaster, we are not doing much legwork here.  Thomson Reuters has a projection of $0.15 EPS and $1.78 billion in sales.

Starwood Hotels & Resorts Worldwide Inc. (NYSE: HOT) is key for hotel investors and this one is expected to post $0.57 EPS on $1.42 billion in sales. Starwood has over $1 billion in cash but is still trading at a high 3.7-times book value.

Trimble Navigation Ltd. (NASDAQ: TRMB) is not so widely watched on its own, but it is used as a barometer reading for Garmin.  Trimble estimates are $0.48 EPS and $419.10.

Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) has been in the news with new FDA approvals.  We have Thursday as the tentative date and estimates are $0.73 EPS and $523.66 million in sales.

YRC Worldwide Inc. (NASDAQ: YRCW) is set to report and it is a puzzlement as to how this stock is still alive.  On a reverse split basis the $12.83 price compares to a 52-week range of $7.94 to somewhere over $1,000.  The consensus is listed as -$6.97 EPS but we have no idea how these targets are composed on this company.

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JON C. OGG

Amgen Corporation (NASDAQ: AMGN) Cut to Neutral at JPMorgan.
Comerica Inc. (NYSE: CMA) Cut to Neutral at Susquehanna.
ConocoPhillips (NYSE: COP) Cut to Sell at UBS.
Google Inc. (NASDAQ: GOOG) Reiterated Buy with $730 price target at Argus.
Jive Software, Inc. (NASDAQ: JIVE) Started as Buy at Citigroup; Started as Neutral at UBS; Started as Outperform at Wells Fargo; Started as Overweight at Morgan Stanley.
Johnson Controls Inc. (NYSE: JCI) Cut to Equal Weight at Barclays.
NuVasive, Inc. (NASDAQ: NUVA) Raised to Buy at Canaccord Genuity.
Procter & Gamble (NYSE: PG) Cut to Hold at Stifel Nicolaus.
PulteGroup (NYSE: PHM) Cut to Equalweight at Barclays.
Research in Motion Ltd. (NASDAQ: RIMM) Raised to Hold from Sell at Deutsche Bank; Reiterated as Hold at Canaccord Genuity.
Sanchez Energy Corporation (NYSE: SN) Started as Buy at Canaccord Genuity; Started as Buy at Stifel Nicolaus.
SIRIUS XM Radio Inc. (NASDAQ: SIRI) Cut to Equal Weight at Morgan Stanley.
ViroPharma Incorporated (NASDAQ: VPHM) Cut to Neutral at JPMorgan.

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JON C. OGG

Excluding sales of distressed homes, that is short sales and real-estate owned properties, prices declined -0.6% year-over-year in November, compared with a decline of -1.6% in October.

Including distressed sales, the biggest price drops occurred in Nevada (-11.2%), Illinois (-9.7%), Minnesota (-7.8%), Georgia (-7.7%) and Ohio (-7.2%). Excluding distressed sales, the largest declines occurred in Nevada (-8.8%), Arizona (-4.9%), Minnesota (-4.7%), Idaho (-4.1%) and Georgia (-3.6%)

Some states are showing home price appreciation as well. Including distressed sales, home prices improved the most in Vermont (+4.3%), South Carolina (+2.8%), District of Columbia (+2.1%), Nebraska (+1.9%) and New York (+1.7%). Excluding distressed sales, the five states showing the greatest price appreciation were Maine (+4.9%), South Carolina (+4.9%), Montana (+3.8%), Indiana (+3.3%) and Louisiana (+2.4%).

Paul Ausick

Recent earnings and forecasts from builders like KB Home (NYSE: KBH), D.R. Horton Inc. (NYSE: DHI), Toll Brothers Inc. (NYSE: TOL), Lennar Corp. (NYSE: LEN), and PulteGroup Inc. (NYSE: PHM) have been mixed, but the trend has been slightly positive for the first time in many quarters.

In the 20-city Case-Shiller index, the one-year decline in Atlanta was worst, at -11.7%, followed by Las Vegas at -8.5% and Minneapolis at -8.4%. The two cities posting one year price gains in October were Detroit, up 2.5%, and Washington, D.C., up 1.3%.

Only one city, Phoenix, posted a month-over-month gain in October, and that gain was a mere 0.3%. The largest decline month-over-month came in Atlanta, at -5%, with Detroit falling -3.3% in the month.

The Case-Shiller indices indicate a couple of things. First, the impact of foreclosed properties still weighs on home prices. And as more foreclosed properties hit the market now that lenders are ending their self-imposed moratorium on foreclosures, more pressure is expected on home prices.

Second, the recent good news on new orders and inventory levels from home builders could be more transient than many had hoped. Even the expected improvements in homebuilding were slight, and remained near recent lows.

Home prices have returned to their level in mid-2003, and the 20-city recovery from its most recent low in March 2011 is up 1.9%. That’s barely better than nothing.

Paul Ausick