TOL

Housing Is Back! Trends in Home Improvement

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Housing prices are no longer in the dumps. What does this mean for the home improvement retailers, and how might other trends be helping to provide a positive industrywide backdrop? Both Home Depot and Lowes may be long-term winners, but valuation considerations shouldn’t be ignored. The Valuentum analyst team digs in. ~8 mins. If you cannot view the podcast below, please select the link here or view the transcript that follows. Chris Araos: Hello, this is Chris Araos at Valuentum Securities. With me are Kris Roseman and Brian Nelson. Today, we are going to focus on Home Depot (HD) and Lowes (LOW) and why they are doing so well. We have a strong housing market. New home sales have hit … Read more

New Home Sales Leap, Computer Sciences Surges; Xilinx Jumps

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May 24 brought news that US new home sales rose at the fastest pace in more than 8 years during the month of April 2016. Computer Sciences leaps to our estimate of intrinsic value on buyout news, and Altera rival Xilinx rises on speculation of potential suitor. ————————- By The Valuentum Team New Homes Sales Leap “Sales of new single-family houses in April 2016 were at a seasonally adjusted annual rate of 619,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 16.6 percent (±15.4%) above the revised March rate of 531,000 and is 23.8 percent (±22.8%) above the April 2015 estimate of 500,000… …The median sales price … Read more

Don’t Be Tempted By Homebuilders’ Dividends

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Image Source: Toll Brothers By Kris Rosemann The underproduction of homes since 2008 has created pent-up demand, providing a material tailwind for homebuilders as of late. According to estimates from Toll Brothers (TOL), the total estimated shortfall of housing starts from the period 2008-2014 was 5.7 million. That equates to an annual shortfall in production of ~818,000 new homes, providing significant opportunities for the homebuilding group as a whole moving forward. Pent-up housing demand has been accruing for years, and stronger general economic conditions, including lower unemployment, modest wage growth, and general consumer confidence continue to drive demand. A favorable jobs/wage market has the potential to provide a material boost for homebuilders, and additional demand could be found in the … Read more

What’s The Deal with US Housing?

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Pictured: An unfinished sub-division in rural Illinois, May 2015. Springtime is here, and housing construction is booming. The US Census Bureau’s latest tally for the seasonally-adjusted annualized rate of housing starts in April came in at 1.14 million, up an incredible 20% from the revised March estimate of 944k (sequentially) and up 9% from the April 2014 rate (year-over-year). That’s some nice expansion, to say the least. Our long-held indirect plays on the US housing recovery have been a couple of ETFs, which focus on an improving consumer credit environment and incremental loan growth from the depths of the Financial Crisis. The two ETFs can be found in the Best Ideas Newsletter portfolio, and we continue to believe that they … Read more

Thinking Out Loud

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I remember when I was fresh out of my undergraduate studies. I applied for a sell-side equity research position. I interviewed with a head sector analyst, and I remember the first question oh so well: What is a gross margin? It was strange. I couldn’t tell if he was joking or not. Of course I knew what a gross margin was, but was this a trick? The interview couldn’t be this easy, right? Well, after responding that a firm’s gross margin is revenue less cost of goods sold divided by revenue, let’s say that he was impressed. But I wasn’t sure why. To me, understanding what makes up a gross margin or operating margin or free cash flow margin or … Read more

Homebuilders Bucking Downtrend

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Homebuilders have a reason to be optimistic as of late. Not only has the SPDR S&P Homebuilders ETF (XHB) firmed up, but Toll Brothers (TOL) released strong fundamental news, helping to buoy the industry. Toll Brothers operates at the high-end of the homebuilding industry. Its average home price, for example, has historically been ~$650,000 compared to ~$300,000 for its publicly-traded peers. As a result, we’d view Toll’s main competitors as small private builders catering to luxury demographics, not necessarily the large public builders. The firm’s performance, however, is worth watching as yet another data point with respect to the industry’s health. Pent up housing demand has been accruing for years, and new home inventory is limited, which makes for an … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

Housing Remains Resilient; D.R. Horton Says Has “Pricing Power”

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On Tuesday, the US’ largest homebuilder, as measured by number of homes closed, revenue and pre-tax income, reported solid fiscal 2014 first-quarter results, lifting spirits across much of the industry. D.R. Horton’s (DHI) homebuilding revenue leapt 33% thanks primarily to a 19% increase in homes closed in the quarter and an average sales price increase of 10%, to $275,600. Home sales gross margin advanced 350 basis points, to 22.3%, helping drive a 76% increase in pre-tax income for the period. The company’s diluted earnings per share increased 80%, to $0.36. The pace of orders was also robust, jumping 14% in value to $1.5 billion and 4% in homes to 5,454. D.R. Horton’s sales order backlog also swelled 20% in value to … Read more