New York, NY, May 17, 2006--Shares of major home builders edged down Tuesday, after an analyst released a report lowering his earnings estimates for the companies based on expected increases in interest rates and predictions of soft spring sales.
Morgan Stanley's Robert Stevenson reduced his 2006 and 2007 earnings projections for KB Home and Lennar Corp., while also cutting his 2007 estimate for Pulte Homes Inc.
"To be clear, we still like the home builders," Stevenson wrote in a note to investors. "But given the current macro environment, we believe it prudent to temper our enthusiasm at this point."
Shares of KB Home fell 58 cents to $55.96, while shares of Lennar dropped 98 cents, or 2 percent, to $48.83 and shares of Pulte Homes fell 77 cents, or 2.3 percent, to $32.67, all in afternoon trading on the New York Stock Exchange.
Stevenson said his original estimates were based on 10-year treasury notes ending 2006 at or below 5.25 percent. But the 10-year is already at 5.2 percent and is expected to keep going up, he said.
The analyst said he now expects Los Angeles-based KB Home to earn $11.25 per share in 2006, down from his previous estimate of $11.41 per share. He also cut his 2007 estimate for the company to $11.20 per share from his previous prediction of $12.11, and reduced his price target to $80 from $84.
Analysts polled by Thomson Financial expect 2006 earnings of $10.93 per share and 2007 earnings of $10.65 per share.
Stevenson cut his 2006 estimate for Miami-based Lennar to $9.03 per share from $9.35, and lowered his 2007 estimate to $8.86 per share from $10.15. He reduced his price target by $3 to $66.
Analysts, on average, expect Lennar to earn $8.94 per share in 2006 and $8.67 per share in 2007.
Stevenson maintained his 2006 estimate for Bloomfield Hills, Michigan-based Pulte Homes at $6.07 per share, but cut his 2007 estimate to $5.96 per share from $6.36 and reduced his price target by $1 to $43.
Analysts expect Pulte Homes to earn $5.67 per share in 2006 and $5.35 per share in 2007.
