Home Builders D.R. Horton, Ryland Show No Quit

With the iShares Dow Jones U.S. Home Construction ETF (NYSE:ITB) up nearly 200 percent since October 2011, all the good news has to be priced into the home builders already, right?

Maybe not, if recent earnings reports have anything to do with it.

Early Tuesday, D.R. Horton (NYSE:DHI) reported solid results with earnings up 122 percent from a year ago to $0.20 a share. Sales rose 41 percent to $1.28 billion. The results handily beat the Thomson Reuters consensus estimate of $0.14 a share and sales of $1.1 billion.

While many home builders are too far extended past proper buy points to consider buying now, D.R. Horton is in a different boat. It staged a technical breakout in heavy volume Tuesday, soaring 11.8 percent to $23.82.

As of Tuesday's close, was 4.5 percent above a buy point its recent high of $22.79 -- still within buying range. It's generally not prudent to chase a stock when it moves more than five percent past a buy point.

The stock is very liquid with an average daily volume of 5.6 million shares. Volume on Tuesday totaled 22.3 million shares. A volume surge like this means that a lot of Tuesday's move was driven by institutional buying.

Meanwhile, after the close Tuesday, Ryland Group (NYSE:RYL) also reported stout numbers. Earnings surged 833 percent to $0.56 a share while sales jumped 68 percent to $440.1 million, also nicely above consensus.

The issue with Ryland Group is that it has run a lot already and needs to consolidate gains before a new buy point emerges. Buy now and you'd be chasing. The last breakout for Ryland Group was when it cleared $35.84 in December. Headed into Wednesday, it was 15 percent past the buy point.

Other builders that fall into the extended camp are Lennar (NYSE:LEN), Standard Pacific (NYSE:SPF) and PulteGroup (NYSE:PHM).

Meanwhile, MDC Holdings (NYSE:MDC) is still in a base and hasn't broken out yet ahead of its earnings report tomorrow. Meritage Homes (NYSE:MTH) also reports on Thursday. It closed Tuesday just above a buying area of $43.02 but volume hasn't come into the stock yet.

It's been a busy week so far of housing data. Earlier this week, December pending-home sales fell 4.3 percent, but the decline had more to do with tight supply rather than slack demand.

Yesterday, the S&P/Case Shiller composite index of 20 metropolitan areas rose 0.6 percent in November, mostly in-line with estimates. Prices rose 5.5 percent from a year ago -- the 10th straight month where prices have increased -- but prices are still about 30 percent below a bubble peak in 2006.

Upcoming Builder Earnings

Three more builders will be out with earnings Thursday before the open.

MDC Holdings: Estimate: $0.40, reversing a year-ago loss -- sales +49 percent to $367.6 million.

PulteGroup: Estimate: eps +675 percent to $0.31 sales +19 percent to $1.5 billion.

Meritage Homes: Estimate: $0.42, reversing a year-ago loss -- sales +45 percent to $355.4 million.

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