Morningstar | Investors Cautious on Homebuilders as East Coast Residents Brace for Hurricane Florence
The homebuilder stocks Morningstar covers--D.R. Horton, Lennar, NVR, PulteGroup, and Toll Brothers--traded down Sept. 13 as Hurricane Florence, which was downgraded to a Category 2 storm on the evening of Sept. 12, closed in on the Carolina coast. Natural disasters like hurricanes can be a double-edge sword for homebuilders. On the one hand, the near-term impact is no doubt unfavorable as closed active communities result in delayed sales orders, and damaged construction in progress (which is generally insured) and reallocated construction-related labor can result in delayed home deliveries. Furthermore, potential orders that were contingent on the sale of existing homes could be delayed or lost as owners tend to property damage. On the other hand, homebuilders could benefit over the longer term as destroyed homes are rebuilt. We believe the five homebuilder stocks we cover traded lower as investors mulled the negative near-term impact on homebuilder operations and likely less robust upside opportunity from rebuilding as Florence's intensity moderated. We don't expect to change our fair value estimates for D.R. Horton, Lennar, NVR, PulteGroup, or Toll Brothers as the hurricane does not materially change our long-term homebuilding outlook.While all five of the homebuilders we cover have active communities in North and South Carolina, none of them possess what we would consider an outsize community concentration in these two states. Based on our analysis of company websites and the latest 10-Q filings, Lennar has the most exposure to the Carolinas; approximately 15% of the company's active communities are in North and South Carolina. Lennar is followed by NVR (14%), D.R. Horton (13%), PulteGroup (9%), and Toll Brothers (5%). Many of these communities are located in more inland portions of North and South Carolina.
Lennar is a homebuilder in the United States, an originator of residential and commercial mortgage loans, a provider of title insurance and closing services and a developer of multifamily rental properties. The company's homebuilding operations include the construction and sale of single-family attached and detached homes as well as the purchase, development and sale of residential land directly and through unconsolidated entities in which it has investments. The company operates under the Lennar brand name. The company creates and participates in joint ventures that acquire and develop land for its homebuilding operations, for sale to third parties or for use in the ventures' own homebuilding operations.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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