Homebuilder shares slide as analyst cuts estimates

Shares of homebuilders slide as analyst cuts estimates, expects housing market to remain weak

• On 4:18 pm EDT, Monday October 26, 2009

NEW YORK (AP) -- Shares of U.S. homebuilders slid Monday after an analyst cut his estimates on several companies and said most in the industry won't turn a small profit until late 2011.

Deutsche Bank analyst Nishu Sood said he expects the housing market to remain weak as benefits from a federal tax credit disappear, unemployment continues to rise and the housing supply grows on a jump in foreclosures. Mortgage rates will also rise when the Federal Reserve stops buying mortgage-backed securities, he said.

To prop up the housing market and help the economy recover from the worst recession since the 1930s, the Federal Reserve has been engaged in an extraordinary level of support, spending $1.25 trillion on mortgage-backed securities, which has driven down rates on home loans.

Sood lowered his earnings estimates for Toll Bros., Ryland Group Inc., Meritage Homes Corp., Lennar Corp., Hovnanian Enterprises Inc., DR Horton Inc. and Pulte Homes Inc., maintaining their ratings at "Hold." He also initiated coverage for KB Home at "Hold" and MDC Holdings Inc. at "Buy."

Sood boosted his price target for Ryland to $22 from $20 and set a new price target of $3 for Hovnanian, saying they are the only builders with a lower default rate. He also raised Pulte's price target to $11 from $10 on its takeover of rival Centex Corp. in August.

Shares of Pulte fell 38 cents, or 3.8 percent, to close at $9.70, while Ryland lost 91 cents, or 4.3 percent, to $20.08 and Hovnanian shed 23 cents, or 5.4 percent, to finish at $4.07. Lennar shares fell 56 cents, or 4 percent, to $13.57; Toll Bros. slid 81 cents, or 4.2 percent, to $18.36; DR Horton Inc. edged down 49 cents, or 4 percent, to close at $11.93; Meritage Homes fell 47 cents, or 2.4 percent, to $19.21; MDC slipped $1, or 2.8 percent, to $34.25; and KB Home fell 35 cents, or 2.2 percent, to end at $15.45.

Buzz up!