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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: ChanceIs who wrote (55443)6/5/2006 10:15:55 AM
From: ChanceIsRead Replies (1) of 306829
UPDATE: Standard Pacific Orders Dn 41%;Mkt Wonders About A Crash

June 5, 2006 10:07 a.m.

NEW YORK -- Home-building stocks traded down Monday after another builder, Standard Pacific Corp.(SPF), joined the growing number of builders reporting a steep decline in housing demand in the current quarter and announcing plans to ratchet down earnings guidance for 2006.

The Irvine, Calif., home builder issued a statement late Friday indicating that orders plummeted 41% in April and May - one of the biggest dropoffs in demand reported yet by a home builder. The news left Wall Street wondering if the sector is heading for a cliff rather than the soft landing that many had been touting.

Standard Pacific cited a surge in cancellations and continued softening demand in many of the company's larger markets, especially in Southern California, Northern California, Florida and Arizona. This was partly offset by higher orders in Texas and Colorado.

The company said it expects to lower its earnings guidance and cut its delivery target for 2006 when it updates its guidance at the end of July.

New York Stock Exchange-listed shares of Standard Pacific traded recently at $28.42, down $1.58, or 5.3%.

Standard Pacific is the latest home builder to issue a statement warning Wall Street of weaker-than-anticipated housing demand and an earnings shortfall. Pulte Homes Inc. (PHM), Hovnanian Enterprises Inc. (HOV), Ryland Group Inc. (RYL) and luxury builder Toll Brothers Inc. (TOL) all have reported a hefty pullback in demand and cut earnings guidance for 2006.

However, Standard Pacific's 41% order decline appears to be the steepest dropoff yet. Pulte said its orders fell 29%, while Ryland's orders were off 35% in the first two months of the quarter. Hovnanian's orders dropped 20% and Toll's fell 32% in their fiscal second quarters.

The news has left some analysts wondering if the sector is heading for a crash - and not a short-term correction.

"Given the recent announcements from numerous builders, we believe we are past the point where a 'soft-landing' scenario is possible, and investors should be prepared for further negative headlines in the near-term," Raymond James analyst Rick Murray said in a note.

Murray lowered his earnings estimates for Standard Pacific to $5.50 from $6 in 2006 and to $3.25 from $3.90 in 2007.

Banc of America analyst Daniel Oppenheim estimates Standard Pacific's cancellation rate soared to 36% in April and May from 24% in the first quarter. "While some expect cancellation rates to decline, we think they will likely remain high given sequentially lower prices," he said in a note.

Oppenheim slashed his 2006 earnings guidance for Standard Pacific for the next three years. He cut his 2006 projection to $5 from $6.15, slashed his 2007 estimate to $2.60 from $4.42 and lowered 2008 guidance to $1.50 from $3.48. He also trimmed his price target to $29 from $32, which implies a negative return of 2.8%.

Murray and Oppenheim don't hold shares in Standard Pacific. While Raymond James has not had an investment-banking relationship with the company in the past 12 months, Banc of America has had an investment-banking relationship with Standard Pacific in the past 12 months.

Standard Pacific's fellow home builders all traded lower Monday. Recently, Pulte Homes was down 3.9% at $30.12, Hovnanian declined 5.5% at $30.57, Toll Brothers fell 2.6% to $28.07, and Ryland was down 3.6% to $47.75.
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