Short Interest in Homebuilder Stocks Shrinks (DHI, MDC, PHM)

The short interest in most residential construction stocks fell during the first two weeks of February, as the rebound in housing continued. The short interest in Hovnanian Enterprises

, K.B. Home

, Lennar

, Meritage Homes

, NVR

, PulteGroup

, Ryland Group

and Toll Brothers

declined between the January 31 and February 15 settlement dates. But the number of shares sold short in Beazer Homes

, D.R. Horton

, MDC Holdings

and Standard Pacific

grew during that time. Furthermore, Home Depot

saw short interest decline by about 12 percent in early February, largely erasing the increase in the previous period. Lowe's

shares sold short increased marginally. The biggest swings in short interest in the stocks of homebuilders between the January 31 and February 15 settlement dates happened to D.R. Horton, MDC Holdings and PulteGroup.

This Fort Worth, Texas-based homebuilder saw its short interest grow more than 10 percent in early February to 34.08 million shares. That was the highest number of shares sold short since November. Short interest is about 12 percent of the float, and the days to cover rose to about six. D.R. Horton saw an analyst upgrade during the period and shares hit new multiyear highs, reaching a level they have not seen since before the housing crash. The company has a market capitalization of more than $7 billion. The return on equity is more than 31 percent, but the long-term earnings per share (EPS) growth forecast is only about five percent. The price-to-earnings (P/E) ratio is less than the industry average. Of the 23 analysts who follow the stock that were surveyed by Thomson/First Call, 11 recommend buying shares, while just one rates shares at Underperform. Their mean price target, or where they expect the share price to go, is about eight percent higher than the current share price. That target is the same as the recent 52-week high. The share price is up more than 10 percent year to date, despite retreating more than six percent from the recent high. The stock has underperformed competitors Lennar and PulteGroup, though it has outperformed the broader markets, over the past six months.

Shares sold short in this homebuilder and financial services provider increased more than 23 percent to about 2.73 million, the third consecutive period of rising short interest. The short interest is now about seven percent of the float, and the days to cover has returned to more than three. This Denver-based company has a market cap of almost $2 billion. MDC crushed earnings expectations in its most recent quarterly report and saw an analyst's upgrade that cited its strong revenue growth. The company's long-term EPS growth forecast is more than 28 percent, but the P/E ratio is higher than the industry average. The consensus recommendation of the analysts polled 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 currently no upside potential. Shares are up more than 62 percent from a year ago, but less than three percent higher year-to-date. Over the past six months, the stock has underperformed competitors D.R. Horton, K.B. Home and Lennar, but it has narrowly outperformed the S&P 500.

Short interest in this Bloomfield Hills, Michigan-based builder shrank more than nine percent during the period to 19.89 million shares. The number of shares sold short has been declining since November and now represents less than six percent of the float. PulteGroup saw an analyst's downgrade in early February despite its fourth-quarter profit that jumped fourfold as orders surged 27 percent. Its market cap currently is more than $7 billion. The long-term EPS growth forecast for this S&P 500 component is only about five percent, and the P/E and PEG ratios are higher than the industry average. Nine of the 21 surveyed analysts recommend buying shares, with four of them rating the stock at Strong Buy. Their mean price target represents about nine percent potential upside, relative to the current share price. But that price target is less than the recent multiyear high. Shares have retreated about 11 percent from that high back in January, mostly erasing the gain since the beginning of the year. But over the past six months, the stock has outperformed D.R. Horton and Lennar, as well as the broader markets.