Hard Knocks For Homebuilder

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By most accounts, the housing market is on the upswing, but that broad trend hasn’t been enough to build up investor confidence in home construction company Ryland Group Inc.

Despite announcing last month that it had posted its most profitable quarter since the bottom fell out of the housing market in 2008, shares of the Westlake Village homebuilder took a tumble last week, falling more than 8 percent to close at $39.03 on Nov. 6. The company was one of the biggest losers on the LABJ Stock Index. (See page 30.)

Ryland’s drop came after investors at International Strategy and Investment Group of Saint Charles, Mo., downgraded the stock from a “strong buy” to a “buy” in a research note to investors last week. Additionally, analysts at Sterne Agee, Credit Suisse and Zacks all cut their target prices for the company’s shares.

Late last month, Ryland reported net income of $53.6 million (95 cents a share) for the quarter ended Sept. 30, more than five times the net income from the same period a year earlier. Revenue, however, which rose more than 60 percent to $576 million, fell short of analysts’ expectations of $602 million.

Larry Nicholson, Ryland’s chief executive, told analysts that rising mortgage rates in the third quarter and the company’s decision to raise home prices in some markets, in addition to a normal seasonal decrease in home sales activity, contributed to the company’s failure to meet anticipated revenue.

Ryland, which focuses on building starter homes in master-planned communities for those looking to spend between $100,000 and $450,000, has in the last year opted to push up home prices where building lots would be difficult to replace, such as Orlando, Fla.; Charleston, S.C.; Houston; Phoenix; and Las Vegas.

“While the slowdown impacted our sales in the short term, it did not alter our outlook on the housing recovery over the long term, provided the economy continues to improve and the employment levels return to healthier levels,” he said in an earnings call late last month.

Ryland’s stock drop last week was greater than the industry as a whole. West L.A.’s KB Home closed off 5.2 percent for the week ended Nov. 6; the wider S&P Homebuilders Index closed down almost 2 percent.

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