Market Overview

Short Interest Swings Home Builder Stocks (NVR, SPF, TPH)

Short Interest Swings Home Builder Stocks NVR, SPF, TPH

The short interest moves in most residential construction stocks were mixed during the final two weeks of March, as some signs suggested that the rebound in housing may be sputtering.

The number of shares sold short in Beazer Homes (NYSE: BZH), Hovnanian Enterprises (NYSE: HOV), Meritage Homes (NYSE: MTH), Ryland Group (NYSE: RYL), Toll Brothers (NYSE: TOL) and TRI Pointe Homes (NYSE: TPH) increased between the February 28 and March 15 settlement dates.

However, the short interest in D.R. Horton (NYSE: DHI), K.B. Home (NYSE: KBH), Lennar (NYSE: LEN), MDC Holdings (NYSE: MDC), NVR (NYSE: NVR), PulteGroup (NYSE: PHM) and Standard Pacific (NYSE: SPF) declined during that period.

In addition, short sellers really shied away from rival home improvement superstore operators Home Depot (NYSE: HD) and Lowe's Companies (NYSE: LOW) during the period. Short interest fell more than 13 percent and more than 41 percent, respectively.

The biggest percentage increases in short interest in the stocks of home builders between the March 15 and March 28 settlement dates happened to NVR, Standard Pacific and TRI Pointe Homes.


This Reston, Virginia-based home builder saw its short interest decline about 13 percent in late March to more than 123,000 shares. That was the lowest number of shares sold short in the past year. Short interest was more than two percent of the float.

In the final two weeks of March, NVR unveiled a new community of 750 single family luxury homes in Virginia. The company has a market capitalization near $5.2 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 more than 10 percent.

Of the nine 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 less than the current share price. For what it is worth, the high price target represents more than nine percent potential upside.

The share price has retreated less than four percent from a recent multiyear high, but it now is up more than 11 percent year-to-date. The stock has underperformed competitors PulteGroup and Ryland, but outperformed the broader markets, over the past six months.

Standard Pacific

Shares sold short in this residential home builder decreased less than 19 percent to about 35.39 million, largely erasing a 21 percent gain in the previous period. The end-of-March figure represents almost 29 percent of the float. Days to cover was more than 10.

This Irvine, California-based company has a market cap of almost $2 billion. Analysts are looking for double-digit percentage growth in EPS and sales, relative to a year ago, when the company reports results for the current quarter. The company's P/E ratio is much less than the industry average, and the long-term EPS growth forecast is only about five percent. But the return on equity is more than 32 percent.

The consensus recommendation of the 13 analysts polled is to hold shares, and it has been for at least three months. Their mean price target is marginally higher than the current share price, which indicates a consensus view that there is little upside potential at this time.

The share price is more than six percent lower than a recent multiyear high, and it is now about 13 percent higher year-to-date. Over the past six months, this stock also has outperformed D.R. Horton and Lennar, as well as the broader markets.

TRI Pointe Homes

Short interest in this Irvine, California-based builder of single-family homes jumped more than 27 percent during the period to 1.36 million shares, or more than 10 percent of the 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.

Faster-than-expected rises in California land prices prompted TRI Pointe Homes to begin buying lots farther from city centers. The company also posted record revenue and earnings for 2012 in late March. The company has a market cap near $636 million, and the 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 14 percent potential upside, relative to the current share price. That price target would be a post-IPO high.

The share price has retreated more than three percent from a recent post-IPO high, and it is now only marginally higher than the IPO. 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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