Short Interest Swings in Home Builder Stocks (KBH, NVR, TMHC)

The short interest moves in most residential construction stocks were mixed during the latter two weeks of May, as the recovery in the housing market continued to gather steam. But KB Home KBH, NVR NVR and Taylor Morrison Home TMHC saw the sharpest rises in short interest.

The number of shares sold short in Lennar LEN, PulteGroup PHM, Ryland Group RYL and Standard Pacific SPF also increased between the May 15 and May 31 settlement dates.

However, short interest in Hovnanian Enterprises HOV, MDC Holdings MDC and Meritage Homes MTH declined more than 15 percent during that period.

And short interest in Beazer Homes BZH, D.R. Horton DHI, M/I Homes MHO, Toll Brothers TOL and TRI Pointe Homes TPH fell more modestly.

Furthermore, short sellers really bought in to home improvement superstore operator Lowe's LOW, pushing short interest up more than 77 percent. But rival Home Depot HD saw its short interest drop more than 16 percent during that time.

Here is a quick look at how KB Home, NVR and Taylor Morrison Home have fared and what analysts expect from them.

KB Home

The number of shares sold short in this residential home builder grew more than 13 percent to about 14.40 million, more than making up for a seven percent decline in the previous period. Note that the short interest was about 20 percent of the float, and days to cover rose to more than three for the first time since March.

This Los Angeles-based company has a market capitalization of almost $2 billion and a dividend yield near 0.5 percent. KB Home acquired land in the Denver area in May. However, its long-term earnings per share (EPS) growth forecast is only about four percent and the return on equity is in negative territory.

The consensus recommendation of the analysts who follow the stock and were polled Thomson Reuters/First Call is to hold shares, and it has been for at least three months. 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 more than 32 percent since the beginning of the year, including a 13 percent slump in the past month. Over the past six months, the stock has outperformed competitors D.R. Horton and Lennar, as well as the S&P 500.

NVR

This Reston, Virginia-based home builder saw its short interest swell more than 20 percent in late May to more than 155,000 shares. That was the highest number of shares sold short since mid-January. Short interest was more than three percent of the float. Days to cover rose from about three to more than five.

In mid-May, NVR unveiled a new line of luxury homes in Pittsburgh. The company has a market capitalization near $4.7 billion. Its long-term earnings per share (EPS) growth forecast is about 10 percent, and its price-to-earnings (P/E) ratio is less than those of competitors PulteGroup and Ryland. The return on equity is about 13 percent.

Of the 10 analysts who follow the stock that were surveyed by Thomson/First Call, seven recommend holding shares. And their mean price target, or where the analysts expect the share price to go, is about four percent higher than the current share price. That target is less than the 52-week high.

After retreating more than 11 percent from a multiyear high in April, the share price is now less than three percent higher year-to-date. And the stock has underperformed larger competitors D.R. Horton and PulteGroup, but as well as the broader markets, over the past six months.

Taylor Morrison Home

Short interest in this home builder and land developer rose more than 19 percent during the period to more than 288,000 shares, though that was only about one percent of the total float. The number of shares sold short has increased in each of the reporting periods since Taylor Morrison went public in April.

The National Association of Home Builders' magazine named this Scottsdale, Arizona-based company Builder of the Year. The company has a market cap near $820 million but does not offer a dividend. Note that its P/E ratio is higher than those of competitors D.R. Horton and PulteGroup, but so is its operating margin.

Both of the analysts polled recommend buying shares of Taylor Morrison Home. They believe shares have some room to run, as their mean price target represents more than 15 percent potential upside, relative to the current share price. That price target would be a post-IPO high.

The share price is up about eight percent since the initial public offering, despite pulling back more than six percent in the past month. The stock has underperformed peers D.R. Horton and PulteGroup, as well as the S&P 500, since its IPO.