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William Lyon Homes Upped to Strong Buy

Zacks Equity Research

On Jan 2, Zacks Investment Research upgraded William Lyon Homes (WLH), a California-based homebuilding company, to a Zacks Rank #1 (Strong Buy) following the company’s solid third quarter 2013 results on Nov 11.

Why the Upgrade?

On Nov 11, William Lyon Homes’ third quarter results beat the prior year quarter levels on most of the parameters by significant margins.

Though earnings missed the Zacks Consensus Estimate, reported revenues surpassed the same by 0.6%. The company’s revenues of $151 million rose 62.2% year over year, driven by volume growth and aggressive pricing. Margins also increased year over year.

The number of homebuilding deliveries increased to 356 units in the third quarter of fiscal 2013, up 33% year over year, attributable to a rise in demand for new homes. The average price of homes delivered was $397,100 in the quarter, up 39.0% year over year.

Despite the supply shortage in the homebuilding market, the company ended third quarter fiscal 2013 with 13,156 owned and controlled lots, an increase of 15% year over year. Supply of homes is expected to remain stable in the upcoming quarters.

Despite increasing mortgage rates and housing prices, the number of net orders signed was 312 in the third quarter of fiscal 2013, up 12% year over year. Value of net orders signed during the quarter was $142.4 million, up 87% year over year.

The company’s backlog totaled 467 homes as of Sep 30, 2013, up 13% year over year. Potential housing revenues from backlog grew 92% year over year to $208.1 million.

William Lyon Homes benefited from the growing momentum of the housing market recovery, particularly along the west coast. The company witnessed strong price appreciation, particularly in Arizona, California and Nevada, which led to an increase of 580 basis points in homebuilding gross margin to 23.6%.  

Other Stocks to Consider

Other stocks worth considering in the industrial goods sector include Gafisa S.A. (GFA), CaesarStone Sdot-Yam Ltd. (CSTE) and James Hardie Industries plc (JHX). While CaesarStone Sdot-Yam and James Hardie Industries carry a Zacks Rank #1 (Strong Buy), Gafisa S.A. carries a Zacks Rank #2 (Buy).

Read the Full Research Report on WLH
Read the Full Research Report on JHX
Read the Full Research Report on GFA
Read the Full Research Report on CSTE

Zacks Investment Research