Market Overview

Short Interest in Home Builder Stocks Rises (MTH, SPF, TPH)

Short Interest in Home Builder Stocks Rises MTH, SPF, TPH

The short interest in most residential construction stocks grew during the first two weeks of March, as some signs suggested that the recovery in housing may be sputtering.

The number of shares sold short in Beazer Homes (NYSE: BZH), D.R. Horton (NYSE: DHI), Lennar (NYSE: LEN), MDC Holdings (NYSE: MDC), Meritage Homes (NYSE: MTH), PulteGroup (NYSE: PHM), Ryland Group (NYSE: RYL), Standard Pacific (NYSE: SPF) and TRI Pointe Homes (NYSE: TPH) increased between the February 28 and March 15 settlement dates.

However, the short interest in Hovnanian Enterprises (NYSE: HOV), K.B. Home (NYSE: KBH), NVR (NYSE: NVR) and Toll Brothers (NYSE: TOL) declined during that period.

Furthermore, short interest in home improvement superstore operator Home Depot (NYSE: HD) also grew somewhat in early March, while that of rival Lowe's Companies (NYSE: LOW) fell more than 20 percent.

The biggest percentage increases in short interest in the stocks of home builders between the February 28 and March 15 settlement dates happened to Meritage Homes, Standard Pacific and TRI Pointe Homes.

Meritage Homes

This Scottsdale, Arizona-based builder of detached single-family homes saw its short interest grow more than 20 percent in early March to 2.01 million shares. About 1.6 million shares were sold short in each of the previous three periods. Short interest is now more than six percent of the float.

In the first two weeks of March, Meritage Homes announced a senior note offering to pay down debt and it saw an analyst's upgrade to Strong Buy. The company has a market capitalization near $1.7 billion, and its long-term earnings per share (EPS) growth forecast is more than 31 percent. Its price-to-earnings (P/E) ratio is less than the industry average, and the return on equity is almost 18 percent.

Of the 15 analysts who follow the stock that were surveyed by Thomson/First Call, just six recommend buying shares. And their mean price target, or where the analysts expect the share price to go, is lower than the current share price. For what it is worth, the high price target represents more than 11 percent potential upside.

The share price has retreated less than three percent from a recent multiyear high, and it now is up almost 23 percent year-to-date. The stock has outperformed competitors D.R. Horton and Lennar, as well as the broader markets, over the past six months.

Standard Pacific

Shares sold short in this residential home builder increased around 21 percent to about 43.51 million, the greatest number in at least a year. This was the third consecutive period of rising short interest, and it now represents more than 35 percent of the float. Days to cover jumped to more than 11.

This Irvine, California-based company has a market cap of almost $2 billion, and its stock was a Jim Cramer pick in mid-March: "You stay in this one. It goes higher," he said. The company's P/E ratio is much less than the industry average, and the long-term EPS growth forecast is only about five percent. But the return on equity is more than 32 percent.

The consensus recommendation of the 13 analysts polled is to hold shares, and it has been for at least three months. Their mean price target is about the same as the current share price, which indicates a consensus view that there is no upside potential at this time.

The share price has retreated less than five percent from a recent multiyear high, and it is now almost 15 percent higher year-to-date. Over the past six months, this stock also has outperformed D.R. Horton and Lennar, as well as the broader markets.

TRI Pointe Homes

Short interest in this Irvine, California-based builder of single-family homes jumped about 27 percent during the period to 1.36 million shares, or more than eight percent of the float. The number of shares sold short has increased in each of the reporting periods since TRI Pointe Homes went public at the end of January.

Faster-than-expected rises in California land prices prompted TRI Pointe Homes to begin buying lots farther from city centers. The company also said it expects to expand its building in the U.S. Southwest. The company has a market cap near $636 million.

So far, the consensus recommendation of the four analysts polled is to buy shares of TRI Pointe Homes. Their mean price target represents more than eight percent potential upside, relative to the current share price. That price target would be a post-IPO high.

The share price has retreated more than two percent from a recent post-IPO high, and it is now almost six percent higher thus far. Since the IPO, the stock's performance has been in line with the broader markets.

Posted-In: Beazer Homes D.R. Horton hovnanian enterprises K.B. Home lennar mdc holdingsShort Ideas Trading Ideas Best of Benzinga

 

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