Sunday, October 17, 2004

Housing Industry Set for Trouble

Reuters
Sunday October 17, 5:16 pm ET NEW YORK (Reuters) - Homebuilders are set for trouble ahead, with next year's earnings from four of the leading housing companies set to run lower than Wall Street expects, according to a hedge fund manager quoted in the latest edition of Barron's.

Doug Kass, of hedge fund Seabreeze Partners, cites recent disappointing news from Pulte Homes as clear warning of trouble ahead for the entire industry.

Pulte Homes Inc. (NYSE:PHM - News) warned on Oct. 4 that third-quarter earnings from continuing operations would fall short of its earlier forecast, saying it had been forced to roll back some price increases in the booming Las Vegas housing market.

Kass also cited as a big negative the rise of speculation of the housing industry. He contended that the cracks in the housing market are apt to surface in a hurry, and likely to spread rapidly, from one market to the next.

He has sold short four of the leading housing companies -- Lennar Corp. (NYSE:LEN - News), Centex Corp. (NYSE:CTX - News), Pulte Homes and Toll Brothers, Inc. (NYSE:TOL - News) and thinks that next year's earnings for each member of this quartet will run considerably lower than Wall Street expects, according to Barron's.

He's estimating that Lennar's earnings per share will be $5.40, compared with the consensus of $6.31; while for Centex, $6, compared with $7.45; for Pulte, $6.50, versus $8.50; and for Toll, $4.55, compared with $5.70.

He sees Lennar's stock price, now around $42-$43, declining to the low $30s; Centex falling from $47 or so to $35; Pulte taking a tumble from $49 to the low $30s, and Toll retreating from $43-plus to $35.