For Immediate Release
Chicago, IL – February 3, 2010 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Dow Chemical (DOW), Equity Residential (EQR), Apartment Investors (AIV), D.R. Horton (DHI) and Lennar (LEN).
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Here are highlights from Tuesday’s Analyst Blog:
Dow Beats Estimates, Stock Dips
The Dow Chemical Company (DOW) reported encouraging results for the fourth quarter and full year 2009. During the fourth quarter EPS was 18 cents, compared to a loss of 63 cents in the same quarter in the previous year. It was above the Zacks Consensus Estimate of 10 cents.
Full-year earnings were 63 cents per share, down from $1.79 in 2008. However, it was more than the Zacks Consensus Estimate of 49 cents.
Sales in the quarter increased 4% to $12.5 billion compared to $12.0 billion in the fourth quarter of 2008. An increase in sales was driven by a 10% increase in volume and 6% decrease in price. Quarterly volume increased 33% year over year in emerging geographies versus the same period last year.
Homeownership Rate Falls Again
Part of the increase in the number of vacancies might be due to in increase in the supply of rental units. For a landlord, a vacant unit is pretty much a deadweight loss and produces no revenue. This will pressure them to lower rental rates.
Renting is a substitute for owning. People need a place to live, but they do not need to own the place they live in. One of the best clues that we were in a housing bubble is when the historic relationship between to cost of renting and the price of buying an equivalent place got way out of whack. The 30% decline in housing prices (based on the Case-Schiller index) has brought that relationship back down near historic norms, but housing prices are still a bit on the high side relative to rents (nationwide; it can vary greatly by locality).
However, with a high vacancy rate causing rents to fall, housing prices are shooting at a falling target. In any case, high vacancy rates and falling rents is not a recipe for robust earnings at the big apartment oriented REITs like Equity Residential (EQR) and Apartment Investors (AIV).
The best way to reduce the huge overhang of vacant houses and apartments in the country is to create more jobs so people can afford to have a place of their own. However, traditionally new home construction has been one of the principal drivers for lifting the country out of a recession. With so many housing units sitting vacant, does it really make sense to build a lot more houses — that will only add to the problem.
There will always be some local areas with shortages and other areas with gluts: a vacant house in Detroit is not a good substitute for a house in North Carolina if your job is in North Carolina, so new home construction will not fall to zero — and might even rebound a bit this year from the current very depressed levels — but it is not realistic to expect a return to the levels seen a few years ago.
The major homebuilders like D.R. Horton (DHI) and Lennar (LEN) might see their losses diminish, or even post a small profit in 2010 (aided by tax loss carry-forwards), but it is going to be a very long time before they get back to what they were earning in the middle years of the past decade.
If there is only a tepid rebound in residential investment, it means that there will probably be only a tepid economic recovery, one that does not create a lot of jobs. Without the recovery in jobs, it will be hard to get rid of the vacant housing units across the country without resorting to bulldozers. Knocking down existing houses might statistically add to economic growth, but it sure will not add to the wealth of the nation.
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