Market Overview

Short Interest in Home Builder Stocks

The short interest moves in most residential construction stocks were mixed during the first two weeks of April, as some the rebound in housing sputtered along.

The number of shares sold short in Beazer Homes (NYSE: BZH), Hovnanian Enterprises (NYSE: HOV), Lennar (NYSE: LEN), PulteGroup (NYSE: PHM), Standard Pacific (NYSE: SPF) and TRI Pointe Homes (NYSE: TPH) increased between the March 28 and April 15 settlement dates.

However, the short interest in D.R. Horton (NYSE: DHI), K.B. Home (NYSE: KBH), MDC Holdings (NYSE: MDC), Meritage Homes (NYSE: MTH), NVR (NYSE: NVR), Ryland Group (NYSE: RYL) and Toll Brothers (NYSE: TOL) declined during that period.

In addition, short sellers really shied away from home improvement superstore operator Lowe's Companies (NYSE: LOW) too. But rival Home Depot (NYSE: HD) saw its short interest well more than double during that time.

The biggest percentage swings in short interest in the stocks of home builders between the March 28 and April 15 settlement dates happened to Meritage Homes, PulteGroup and TRI Pointe Homes.

Meritage Homes

Shares sold short in this builder of single-family detached homes declined more than nine percent to about 1.86 million, after being relatively flat in the previous period. The short interest was less than six percent of the float, and days to cover was a little more than three.

This Scottsdale, Arizona-based company has a market capitalization of about $1.7 billion. Meritage has been speculated on as a possible takeover target. The company's return on equity is almost 18 percent, and the long-term earnings per share (EPS) growth forecast is about 31 percent. The price-to-earnings (P/E) ratio is less than the industry average.

Out of 15 analysts who follow the stock that were polled Thomson Reuters, six of them recommend buying shares, including two who rate the stock at Strong Buy. The mean price target is less than the current share price, which indicates a consensus view that there is no upside potential at this time.

Shares are up about 29 percent since the beginning of the year, including a 17 percent jump in the past week. Over the past six months, the stock has underperformed competitors D.R. Horton and Lennar, as well as the S&P 500.

PulteGroup

Short interest in this Bloomfield Hills, Michigan-based builder rose more than 12 percent to 23.23 million shares. That was the highest number of shares sold short so far this year and was less than seven percent of the float. Days to cover remains at more than two.

In early April, PulteGroup forecast an impending millennial housing boom. The company has a market cap of more than $8 billion. The long-term EPS growth forecast of this S&P 500 component is more than 28 percent, and the P/E and PEG ratios are lower than the industry average.

Ten of the 21 surveyed analysts recommend buying shares, with four of them rating the stock at Strong Buy. Their mean price target is about the same as the current share price. But the highest individual price target represents about 20 percent potential upside. That would be a level shares have not seen since 2007.

PulteGroup shares also surged in the past week, reclaiming ground lost over the past few weeks. Shares are up almost 12 percent year-to-date. Over the past six months, the stock has narrowly outperformed D.R. Horton and Lennar, and it has also outperformed the broader markets.

TRI Pointe Homes

Short interest in this Irvine, California-based builder of single-family homes rose almost 10 percent during the period to 1.90 million shares, or to nearly 12 percent of the total 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. Days to cover is up to almost seven.

TRI Pointe Homes posted record revenue and earnings for 2012 at the end of March and said it has acquired more than 300 lots so far in 2013. The company has a market cap near $618 million. Note that its P/E ratio is higher than the industry average.

So far, the consensus recommendation of the four analysts polled is to buy shares of TRI Pointe Homes. They believe shares have some room to run, as their mean price target represents more than 13 percent potential upside, relative to the current share price. That price target would be a post-IPO high.

The share price has risen more than three percent in the past week, recovering from a recent pullback. The share price is also about three percent higher year-to-date. The stock has underperformed the broader markets since its IPO.

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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