Market Overview

Swings in Home Builder Short Interest (KBH, RYL, TMHC)

Swings in Home Builder Short Interest KBH, RYL, TMHC

In early September, the housing market continued to recover, even while mortgage rates crept higher as well. Overall, the short interest moves in residential construction stocks were modest in the period.

However, KB Home (NYSE: KBH), Ryland Group (NYSE: RYL) and Taylor Morrison Home (NYSE: TMHC) saw upswings in short interest of more than 10 percent between the August 30 and September 13 settlement dates.

The number of shares sold short in Lennar (NYSE: LEN), MDC Holdings (NYSE: MDC) and NVR (NYSE: NVR) also increased early in the month.

The level of short interest in Beazer Homes (NYSE: BZH), D.R. Horton (NYSE: DHI) and PulteGroup (NYSE: PHM) was essentially unchanged from the previous period.

Hovnanian Enterprises (NYSE: HOV), Lyon William Homes (NYSE: WLH), Meritage Homes (NYSE: MTH), M/I Homes (NYSE: MHO), Standard Pacific (NYSE: SPF), Toll Brothers (NYSE: TOL) and TRI Pointe Homes (NYSE: TPH) saw their short interest decline somewhat.

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

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KB Home

The number of shares sold short in this residential home builder grew almost 12 percent to about 19.04 million. That was the highest level of short interest since January, and it represents more than 26 percent of the total float. The days to cover slipped to less than three.

This Los Angeles-based company has a market capitalization near $1.5 billion and a dividend yield around 0.6 percent. Strong quarterly and full fiscal year results are predicted when KB Home next reports. However, its long-term earnings per share (EPS) growth forecast is only about four percent.

The consensus recommendation of the analysts who follow the stock and were polled by Thomson Reuters/First Call is to hold shares, and it has been for at least three months. The mean price target, or where analysts expect the share price to go, is about six percent higher than the current share price.

The share price is up more than 12 percent in the past month, but it is still well below the 52-week high reached back in May. Over the past six months, the stock has narrowly outperformed competitors D.R. Horton and Pulte Group. However, it has underperformed the S&P 500.

Ryland Group

The number of shares sold short in this home builder and a mortgage-finance company gained more than 11 percent in the period to around 6.30 million, or about 13 percent of the float. Short interest has risen for three straight periods and is the highest since April. The days to cover remained less than four.

This Westlake Village, California-based company has a market cap of less than $2 billion and a dividend yield near 0.3 percent. The long-term EPS growth forecast is about 32 percent and the return on equity is more than 50 percent. Analysts expect to see very strong year-over-year growth of EPS and revenue in the current quarter.

Out of 19 analysts surveyed, nine recommend buying shares, three of them rating the stock at Strong Buy. The analysts believe that shares have some room to run, as the mean price target is more than 14 percent higher than the current share price. Yet that consensus target is lower than the 52-week high.

The share price is up more than 17 percent in the past month, though it has pulled back a bit in the past few days. Over the past six months, Ryland Group's stock has outperformed the likes of D.R. Horton and Lennar, though it has underperformed the broader markets as well.

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Taylor Morrison Home

Short interest in this home builder and land developer grew more than 21 percent in the initial weeks of September to around 966,000. That was about three percent of the float. The post-IPO peak was more than 1.5 million shares sold short in mid-July. The days to cover in the most recent period was two.

The lockup period of this Scottsdale, Arizona-based company expires soon and many more shares may become available. Taylor Morrison has a market cap near $750 million. While its return on equity is about 44 percent, the long-term EPS growth forecast is only around five percent.

Nine of the 11 analysts surveyed recommend buying shares of Taylor Morrison Home. They see plenty of headroom for shares, as their mean price target is about 17 percent higher than the current share price. That price target would be a new high since the initial public offering back in April.

Shares have risen more than 13 percent in the past month and are now trading in the same neighborhood as at the IPO. The stock has outperformed competitors Lennar and PulteGroup since coming public, but it has underperformed the broader markets too.

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


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