Homebuilder Shares Rise After Analysts' Upgrade
Standard Pacific Corp. and Toll Brothers Inc. led gains in shares of American homebuilders after those companies and D.R. Horton Inc. were upgraded by analysts at JPMorgan Securities.
JPMorgan raised its ratings on the shares on expectations that housing inventories may decline next year. The Standard & Poor's Supercomposite Homebuilding Index of 16 homebuilders rose 2.9%.
The index is down 25% this year, after higher mortgage rates led to a slump in demand for new homes.
Growth in inventories that resulted from slowing demand following 17 Federal Reserve interest-rate increases has leveled off and should start to reverse in the first half of next year, JPMorgan analysts Michael Rehaut, Jennifer Consoli, and Ray Huang wrote in a note to investors. A reduction in new starts and increased incentives will help match supply to demand, they said.
"Key fundamentals are either beginning to stabilize or are on the cusp of recovering," the analysts wrote. "Moreover, most negative news has been anticipated. As a result we recommend investors begin building positions over the coming months."
Shares of Horsham, Pennsylvaniabased Toll Brothers, the largest luxury homebuilder, rose $1.48, or 5.1%, to $30.29 at 4 p.m. in New York Stock Exchange composite trading.
Shares of Irvine, California-based Standard Pacific, which sells houses in California, Texas, Arizona, and Colorado, rose $1.25, or 4.9%, to $26.62.
Shares of Fort Worth, Texas-based D.R. Horton, the second-largest American homebuilder by market value, rose 92 cents, or 3.9% to $24.76.
Toll Brothers was upgraded to neutral from underweight. D.R. Horton, the second-largest American homebuilder, and Standard Pacific were raised to overweight from neutral.
Shares of Pulte Homes Inc., the largest homebuilder by market value, rose $1.07 to $34.07.
D.R. Horton said today fiscal fourthquarter orders declined 34% as homebuyers canceled planned purchases. Shares of D.R. Horton are down 30% this year.
KB Home, the sixth-largest American homebuilder by market value, also said today that fiscal third-quarter profit probably fell about 32%. It also said it improperly accounted for stock option grants to Chief Executive Officer Bruce Karatz and may need to restate previous earnings. Shares of KB Home rose 96 cents to $45.75.
Standard Pacific of Irvine, California, is down 28% this year and has a value of $1.72 billion after saying on September 8 that third-quarter earnings would be lower than its forecasts, without being specific.
Toll Brothers said on August 22 that buyers were suffering "a crisis of confidence" and reported a 19% slump in earnings for the three months ended July 31.
Toll is the biggest luxury builder in America, selling 2,157 homes at an average price of $690,000 in the quarter, triple the national average.
"While pricing, orders and starts may still show negative trends in the near term, inventories — the leading driver of the market's pullback — have begun to stabilize and in turn should drive a market recovery," the JPMorgan note said.
