Home Depot’s fourth quarter 2011 earnings conference call, led by CEO and chairman Frank Blake, left a positive note on the housing recovery beyond what federal data has alluded to. (STAY AHEAD OF THE CURVE: Follow Kapitall on Twitter)
The second half of 2011 surprised Home Depot (HD), exceeding internal forecasts. “Sales for the fourth quarter were $16 billion, up 5.9% from last year. Comp sales were positive 5.7%, and our diluted earnings per share were $0.50. Our U.S. stores had a positive comp of 6.1%.” (‘Comp’ sales refers to comparable sales, or sales from the same time last year.) The findings suggested a strengthening in the housing market.
Although the company saw positive comp sales in “all of our top 40 markets,” the company left room for doubt, citing the unusually warm winter months. “Better weather translates into improved sales for exterior categories like building materials and also translates into increased customer transactions, which lift the entire business.”
Still, several markets that saw better-than-expected sales were in areas like California and Florida, where weather is typically a non-factor to begin with. CEO Frank Blake commented “those markets are more reflective of not a housing recovery, but a stabilization in the markets that we’ve seen over the last 2 years.”
Blake also added that past improvements in the housing market were policy related. In 2011, “we have no government programs to cloud what’s happening. … And the way we look at it is, there are some positives that you definitely see on housing.” (via Calculated Risk)
Business Section: Investing Ideas
Home Depot is hesitant going forward since their forecasts for 2012 are in a tug of war between internal indicators that suggest the housing situation is better than expected, and federal data that suggest it will be a slower process.
While Home Depot can serve as a bell-weather of housing projects and improvements, there are other pure plays out there.
For ideas on how to trade on the housing market we screened a universe of residential construction companies that could benefit. We specifically screened for companies with net positive levels of institutional buying in the current quarter.
Institutions, such as hedge funds, often have access to more sophisticated market data than the average investor. They also tend to trade millions of dollars worth of stock at a time. If they are buying shares of a company it is assumed some smart minds had good reason to do so.
Do you agree with institutional investors? Could these housing construction stocks have more value to price in?
Interactive Chart: Use the Compar-O-Matic to compare analyst ratings for the stocks mentioned below:
1. DR Horton Inc. (DHI, Earnings, Analysts, Financials): Operates as a homebuilding company in the United States. Net institutional purchases in the current quarter at 8.8M shares, which represents about 3.18% of the company’s float of 276.53M shares.
2. Lennar Corp. (LEN, Earnings, Analysts, Financials): Operates as a home builder and provider of financial services in the United States. Net institutional purchases in the current quarter at 5.1M shares, which represents about 3.16% of the company’s float of 161.63M shares.
3. Meritage Homes Corporation (MTH, Earnings, Analysts, Financials): Engages in designing and building single-family attached and detached homes in the southern and western United States. Net institutional purchases in the current quarter at 1.9M shares, which represents about 6.83% of the company’s float of 27.82M shares.
4. Ryland Group Inc. (RYL, Earnings, Analysts, Financials): Operates as a home building and mortgage-finance company in the United States. Net institutional purchases in the current quarter at 4.0M shares, which represents about 9.71% of the company’s float of 41.19M shares.
(Written by Rebecca Lipman. Institutional data sourced from Fidelity. Author owns shares of HD.)
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Dig Deeper: Access Company Snapshots, Charts, Filings
- DR Horton Inc. (DHI, Chart, Download SEC Filings)
- Lennar Corp. (LEN, Chart, Download SEC Filings)
- Meritage Homes Corporation (MTH, Chart, Download SEC Filings)
- Ryland Group Inc. (RYL, Chart, Download SEC Filings)
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