Raymond James Downgrades WCI Communities After 'Sudden Collapse' Of March Orders

Shares of WCI Communities Inc WCIC fell 4.6 percent after Raymond James downgraded the stock to Outperform from Strong Buy on "surprise" drop in order growth.

The Florida-based lifestyle community developer reported first-quarter earnings of $0.25, topping consensus view of $0.17 on 63.9 percent growth in homebuilding revenues to $109.8 million. The company delivered 254 homes in the first quarter, up 84.1 percent from last year.

However, new orders fell 1.9 percent to 310. This implies a huge drop versus fourth quarter when the company reported 30 percent growth in new orders. The first quarter orders widely missed Raymond James +29 percent estimate.

Justification

Analyst Buck Horne noted that "the headline also masks some unusual intra-quarter volatility," as WCI recorded 35 percent order growth in February, but March orders collapsed 24 percent.

Related Link: Homebuilder Investors Losing Confidence After Surprise Decline In Existing Home Sales

"We suspect the calendar shift of Easter into March (when many seasonal FL residents move back north) may have robbed WCI of a valuable selling weekend this year," Horne wrote in a note.

The analyst said a "warmer weather outside Florida this year, stock market volatility, and the cumulative effect of last year's home price increases" may have weighed on the order growth. Horne noted that WCI's active-adult communities saw weaker absorption rate.

"[I]t now appears active adult demand in Southwest Florida was more deeply impacted this spring by a variety of factors, which in turn, reduces our visibility on a near-term catalyst to support a Strong Buy rating," Horne said.

In addition, the analyst said "a quick snapback in demand is unlikely," as the company noted that April orders were tracking roughly flat y/y. Horne also highlighted that "the peak selling season for Florida's seasonal active adult buyers (50 percent of 1Q sales) has now already passed."

"While demand trends appeared to generally moderate across Florida this quarter when compared to the prior year, we believe the Florida housing market remains healthy," Keith Bass, the company's president and chief executive officer, said in a statement.

Estimates And Price Target

Horne lowered his 2016 and 2017 EPS estimates to $1.30 and $2.10 from $1.40 and $2.35, respectively.

The analyst also cut his near-term target price to $20 from $23. But he believes in WCI's longer-term demographic opportunity, and the embedded value of its high-quality Florida assets.

"For longer term investors, though, we believe patience will be rewarded, as the shares' current valuation (7 percent discount to GAAP book value, 25 percent discount to our adjusted BV) marks a compelling entry-point with limited downside, in our view," Horne added.

At time of writing, WCI was down 4.6 percent at $16.81. The stock has fallen 24.57 percent this year.