Market Overview

Meritage Homes, NVR See Big Short Interest Swings (KBH, MTH, NVR)

The short interest moves in residential construction stocks were mixed again during the final weeks of July, as the recovery in the housing market continued to recover.

KB Home (NYSE: KBH), Meritage Homes (NYSE: MTH) and NVR (NYSE: NVR) saw upswings in short interest of more than 20 percent.

The number of shares sold short in Beazer Homes (NYSE: BZH), D.R. Horton (NYSE: DHI), Lyon William Homes (NYSE: WLH), MDC Holdings (NYSE: MDC) and TRI Pointe Homes (NYSE: TPH) also increased between the July 15 and July 31 settlement dates.

The short interest in Lennar (NYSE: LEN), M/I Homes (NYSE: MHO) and Standard Pacific (NYSE: SPF) was essentially flat, compared to the previous period.

PulteGroup (NYSE: PHM) and Taylor Morrison Home (NYSE: TMHC) saw their shares sold short shrink more than 12 percent during that period. Short interest in Hovnanian Enterprises (NYSE: HOV), Ryland Group (NYSE: RYL) and Toll Brothers (NYSE: TOL) declined more modestly.

Furthermore, short sellers retreated from home improvement superstore operators Home Depot (NYSE: HD) and Lowe's Companies (NYSE: LOW)during the period.

Below is a quick look at how KB Home, Meritage Homes and NVR have fared and what analysts expect from them.

See also: U.S. Postal Service Posts $740 Million Loss And May Default On Pension Payment

KB Home

The number of shares sold short in this residential home builder grew more than 21 percent to about 17.63 million, which was more than 24 percent of the total float. That was the highest level of short interest since February. Days to cover rose to about four for the first time since May.

This Los Angeles-based company has a market capitalization of more than $1 billion and a dividend yield near 0.6 percent. KB Home unveiled a new development in the Denver area in July. Note that the company's 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. Yet their mean price target, or where the analysts expect the share price to go, is more than 19 higher than the current share price.

The share price has retreated about 32 percent over the past 90 days, though it is still about 60 percent higher than a year ago. Note that the stock is nearing a death cross. Over the past six months, KB Home has outperformed competitors D.R. Horton and Lennar, despite underperforming the S&P 500.

Meritage Homes

This builder of detached single-family homes saw its short interest grow more than 24 percent in late July to 1.45 million shares. That was the highest number of shares sold short since mid-May. Short interest was more than four percent of the float, and days to cover was about two.

Scottsdale, Arizona-based Meritage Homes beat second-quarter estimates on both the top and bottom lines. The company has a market cap near $1.6 billion. Its long-term EPS growth forecast is nearly 60 percent, and its return on equity is more than 20 percent.

Of the 16 analysts who were surveyed, only eight recommend buying shares. They believe the shares have some room to run though, as the mean price target is more than 14 percent higher than the current share price. That is less than the 52-week high from last May, however.

Shares have traded mostly between $42 and $46 since early June, but the share price is more than 14 percent higher than at the beginning of the year. The stock has outperformed competitors D.R. Horton and Lennar, but underperformed the broader markets, over the past six months.

NVR

This Reston, Virginia-based home builder saw its short interest swell more than 22 percent in the period to more than 242,000 shares. That was the highest number of shares sold short in at least a year. Short interest was more than five percent of the float. The days to cover rose to about five.

In July, NVR said its second-quarter earnings grew, but less than analysts had expected. The company has a market capitalization of about $4 billion. Its long-term EPS growth forecast is about 10 percent, and its price-to-earnings (P/E) ratio is greater than those of PulteGroup and Ryland.

Of the 12 polled analysts, nine recommend holding shares. Their mean price target indicates more than 11 percent potential upside, relative to the current share price. Note though that their consensus target is less than the multiyear high reached back in March.

After retreating more than 17 percent from that multiyear high, the share price is now more than four percent lower than at the beginning of the year. However, the stock has outperformed larger competitors D.R. Horton and Pultegroup over the past six months, though it has underperformed the broader markets.

See also: NVR Announces Share Repurchase

At the time of this writing, the author had no position in the mentioned equities.

Posted-In: Beazer Homes D.R. Horton hovnanian enterprises K.B. Home lennar Lyon William Homes M/I Homes mdc holdings meritage homes NVR PulteGroup Ryland Group Standard Pacific Taylor Morrison Home Toll Brothers TRI Pointe HomesShort Ideas Trading Ideas Best of Benzinga

 

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