Are Homebuilders About to Bounce Back? (DHI, RYL, PHM, LEN, KBH, TOL, XHB)

Today’s disappointing report on unemployment from the US Labor Department sent stock futures down sharply this morning.  Along with that slide may have gone some glimmers of hope for US homebuilders.  A recent report from Barron’s suggested that shares in two homebuilders, D.R. Horton Inc. (NYSE: DHI) and Ryland Group Inc. (NYSE: RYL), could move higher on today’s jobs reports. Clearly the analysts were looking for something more than the Labor Department delivered. But would that have been enough to fuel some optimism about the homebuilders?

When Horton’s CEO reported earnings for the company’s fourth fiscal quarter in mid-November, he said, “To be quite candid, I don’t see much on the horizon that would give anybody a great degree of comfort on the financial condition of the country. I just don’t see a lot of hope for a great spring market.”  Does that sound encouraging?

Or does any of this sound encouraging? PulteGroup, Inc. (NYSE: PHM) reported an EPS loss of -$2.63 for its most recent quarter, posting $1 billion in impairment and other charges. Lennar Corp. (NYSE: LEN) reported an EPS gain of $0.06 for its third quarter, but that is expected to fall to just $0.02 in the fourth quarter and to a loss in the first quarter of 2011. KB Home (NYSE: KBH) reported a loss in its third quarter and expects more in the fourth quarter. (NYSE: TOL) posted a loss in its third quarter and only showed a profit in the fourth quarter due to an unexpected tax benefit.

Now there was something approximating good news about October 2010 pending home sales. The National Association of Realtors reported a 10.4% increase in its pending home sales index from September to October. September’s report noted a -1.5% decline from August. But compared with October 2009, this past October was down more than 20%. Those figures are for seasonally adjusted annual rates; the non-adjusted numbers are about 10% worse.

If there is any substantively good news for homebuilders, it’s pretty well hidden. Homebuilders’ shares are all down between -1% and -3% in early trading this morning, and the SPDR S&P Homebuilders ETF (NYSE: XHB) is down a little more than 1%.

Paul Ausick