High Growth Expectations Lead to Overpriced Homebuilding Stocks: Lennar Corporation (LEN) and More

According to Joel Locker, an analyst with FBN Securities, investors were dissatisfied with order growth as it trailed other builders. Until this news surfaced, PulteGroup was the best performer among these companies. Mr. Locker also said , “Pulte couldn’t meet lofty expectations. I don’t think sentiment could be higher in homebuilders. Investors expect significant earnings growth in the next few years to justify these stock prices.”

The stock price for PulteGroup was punished even though it beat analyst estimates and last year’s numbers during the fourth quarter, PulteGroup reported a net income of $58.7 million or 15 cents per share as compared to $13.8 million or 4 cents per share during the previous year. It comprises of certain costs such as future loan-repurchase obligations of $49 million or 13 cents per share and repurchase of senior notes of $32 million or 8 cents per share. This was offset by an income tax benefit of $8 million or 2 cents per share.

According to a Bloomberg survey of 19 analysts, the average estimate of net income of 31 cents per share. According to Stephen East, an analyst at International Strategy & Investment Group, the earnings per share was 34 cents per share excluding one-time expenses. The revenues increased from $1.26 billion to $1.57 billion. Apparently the homebuilders have to do more than just post high earnings to keep share prices up.

Conclusion

The expectations for homebuilders are just too high for investors to jump in at today’s prices.

The article High Growth Expectations Lead to Overpriced Homebuilding Stocks originally appeared on Fool.com and is written by Bill Edson.

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