Ticonderoga: Recent Builder Commentary Paints Modest Conditions But Determined Focus
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Rating Summary:
11 Buy, 9 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 0 | Down: 0 | New: 0
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Ticonderoga: Recent Builder Commentary Paints Modest Conditions But Determined Focus
Ticonderoga analyst says, "Several public homebuilder management teams have made appearances of late, thus providing investors additional color into the current conditions of the New Home market and their respective companies. Below are some key takeaways for each, as well as our commentary on those statements, strategies and actions. We continue to believe the equities face headwinds until comparisons become much easier in the second half of the year as the tax credit anniversary passes. We expect the group gains Order growth momentum as we look for an 18.7% increase in 3Q and a 17.3% advance in 4Q compared to 25.8% and 10.8% declines, respectively, last year. In comparison, we expect Order growth of only 6.8% in 2Q versus a 17.0% decline last year. We believe a sustained advance in the equities is not likely to occur until after 2Q earnings season. In sum, we expect heightened investor attention toward the group in late summer and early fall - thanks to the easy comparisons - when the equities have customarily experienced waning interest."
"Ryland Group (NYSE: RYL) believes community growth of the targeted 245 communities is on track for end of year. That will make 80% of communities new since beginning of 2010, which also will have higher margins than legacy communities. We have been confident in the growth and have modeled 245 communities for some time. However, we are more conservative on the gross margin expansion in 2012 than 80% new communities implies. Thus, there is upside to our 16.5% estimated 2012 gross margin."
"D.R. Horton (NYSE: DHI) continues to hold a rather conservative outlook for the industry through 2012 and longer. Near-term, the company’s focus is on making targeted field reductions to return all divisions to profitability. We agree with management’s assessment for 2012, but believe we will start seeing improvement in 2013 and 2014 as foreclosures in more desirable locations get burned off."
KB Home (NYSE: KBH) is slowly re-invigorating its partnership with Martha Stewart, while the percentage of First Time buyers has dropped from 75% to 60%. Given our field research, we favor this action with Martha Stewart. In both
Raleigh and Denver, the company’s Martha communities were outselling nearby competitors. As the market appears to be coming into better balance, the Martha line will provide a competitive advantage for the company in the move-up segment. We are not convinced an enlarged Open Series plan will garner great success with more discriminating buyers. We also believe the emphasis on Martha Stewart will allow KBH to more quickly move away from entry level."
"Toll Bros. (NYSE: TOL) - Having spent $550M on 8K lots over the past 5 quarters, TOL continues aggressively looking for avenues to deploy its cash hoard. Given one of the longer land positions in the industry, we believe a more balanced capital allocation with the reduction of debt would be better. At a minimum, we believe the company should reduce its overall land exposure by liquidating less attractive legacy assets if current acquisition opportunities provide an overall better portfolio mix."
"Meritage (NYSE: MTH) now provides buyers the opportunity to purchase Net Zero energy homes in 21 communities for an incremental $10-$20K. Likewise, the company now employs the use of spray foam insulation in the majority of its homes. We believe MTH has been the most successful public builder to date in marketing energy efficiency to the consumer. As there is little to differentiate a home built today versus those built during the boom, other than energy efficiency, we expect MTH’s capitalization on reduced operating costs for prospective buyers will remain a competitive advantage for some time."
Ticonderoga analyst says, "Several public homebuilder management teams have made appearances of late, thus providing investors additional color into the current conditions of the New Home market and their respective companies. Below are some key takeaways for each, as well as our commentary on those statements, strategies and actions. We continue to believe the equities face headwinds until comparisons become much easier in the second half of the year as the tax credit anniversary passes. We expect the group gains Order growth momentum as we look for an 18.7% increase in 3Q and a 17.3% advance in 4Q compared to 25.8% and 10.8% declines, respectively, last year. In comparison, we expect Order growth of only 6.8% in 2Q versus a 17.0% decline last year. We believe a sustained advance in the equities is not likely to occur until after 2Q earnings season. In sum, we expect heightened investor attention toward the group in late summer and early fall - thanks to the easy comparisons - when the equities have customarily experienced waning interest."
"Ryland Group (NYSE: RYL) believes community growth of the targeted 245 communities is on track for end of year. That will make 80% of communities new since beginning of 2010, which also will have higher margins than legacy communities. We have been confident in the growth and have modeled 245 communities for some time. However, we are more conservative on the gross margin expansion in 2012 than 80% new communities implies. Thus, there is upside to our 16.5% estimated 2012 gross margin."
"D.R. Horton (NYSE: DHI) continues to hold a rather conservative outlook for the industry through 2012 and longer. Near-term, the company’s focus is on making targeted field reductions to return all divisions to profitability. We agree with management’s assessment for 2012, but believe we will start seeing improvement in 2013 and 2014 as foreclosures in more desirable locations get burned off."
KB Home (NYSE: KBH) is slowly re-invigorating its partnership with Martha Stewart, while the percentage of First Time buyers has dropped from 75% to 60%. Given our field research, we favor this action with Martha Stewart. In both
Raleigh and Denver, the company’s Martha communities were outselling nearby competitors. As the market appears to be coming into better balance, the Martha line will provide a competitive advantage for the company in the move-up segment. We are not convinced an enlarged Open Series plan will garner great success with more discriminating buyers. We also believe the emphasis on Martha Stewart will allow KBH to more quickly move away from entry level."
"Toll Bros. (NYSE: TOL) - Having spent $550M on 8K lots over the past 5 quarters, TOL continues aggressively looking for avenues to deploy its cash hoard. Given one of the longer land positions in the industry, we believe a more balanced capital allocation with the reduction of debt would be better. At a minimum, we believe the company should reduce its overall land exposure by liquidating less attractive legacy assets if current acquisition opportunities provide an overall better portfolio mix."
"Meritage (NYSE: MTH) now provides buyers the opportunity to purchase Net Zero energy homes in 21 communities for an incremental $10-$20K. Likewise, the company now employs the use of spray foam insulation in the majority of its homes. We believe MTH has been the most successful public builder to date in marketing energy efficiency to the consumer. As there is little to differentiate a home built today versus those built during the boom, other than energy efficiency, we expect MTH’s capitalization on reduced operating costs for prospective buyers will remain a competitive advantage for some time."
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