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Click here for more stories by Nicholas Yulico Homebuilders' shares unexpectedly rallied late Wednesday following a broa d market rebound. Builders' shares had been in the red earlier in the day, after one major analyst turned very cautious on the housing sector and downgraded a host of major names. But a late-day boost, likely helped by short-sellers co vering their positions, sent the Philadelphia Housing Index up 33%.
Cramer's Take) -- finished the day in the black, up 39% and 24% respectively. In his report titled "It'll Get Worse Before It Gets Better," released ea rly Wednesday, Bank of America homebuilding analyst Daniel Oppenheim dow ngraded the entire homebuilding sector. He cited evidence from his firm' s October real estate agent survey that "points to deteriorating trends in most markets," including "traffic levels that are well below expectat ions, a meaningful slowdown in home price appreciations, and a build-up of inventory of homes for sales, which likely indicates further weakness in pricing trends in the months to come."
reported earnings Tuesday, were all cut to neutral from buy by Oppenheim, who also cut the ratings on MDC. Oppenheim expects homebuilders as a group to report 11% EPS growth in 200 6, down from his prior 15% estimate. He anticipates further downside in homebuilder stocks based on the potential for margin erosion and downwar d 2006 earnings estimate revisions. He also believes P/E multiples may fall further for the group, possibly e ven hitting their prior trough valuation of five times forward earnings. "This implies approximately 17% downside from current levels," he wrote .
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