Zacks Investment Research downgraded Ryland Inc. (RYL - Snapshot Report) to a Zacks Rank #5 (Strong Sell) on Jan 03, 2013 due to a sharp decline in net order growth in third-quarter fiscal 2013.
Why the Downgrade?
Ryland Inc. has witnessed sharp downward estimate revisions after reporting third-quarter fiscal 2013 results. Although the California based homebuilding company reported decent results in the third quarter fiscal 3013, the sharp deceleration in new orders concern us.
Rising home prices and the spike in interest/mortgage rates since May this year slowed down the pace of orders and traffic in the homebuilding industry. Ryland also faced a sharp fall in absorption rates of monthly orders per community as the cancellation rate went up sharply. This was because buyers were taken unawares by the sudden increase in rates and customers put off their purchase decision, thereby increasing cancellation rates and lowering orders
Moreover, there is a possibility of a downward pressure on margins in 2014 due to its aggressive acquisitions, higher mortgage rates and diminished pricing power in the slow housing sector.
The housing sector is experiencing a slowdown since May 2013 due to the political uncertainty in Washington, rising home prices and tight credit availability leading to slowing down of orders for most homebuilders.
The Zacks Consensus Estimate for 2014 decreased 1.0% to $6.69 per share over the last 60 days. For 2014, most of the estimates were revised downward over the same time frame, lowering the Zacks Consensus Estimate by 8.6% to $3.17 per share.
Other Stocks to Consider
Other stocks worth considering in the industrial goods sector include Gafisa S.A. , CaesarStone Sdot-Yam Ltd. and James Hardie Industries plc . While CaesarStone and James Hardie Industries carry a Zacks Rank #1 (Strong Buy), Gafisa carries a Zacks Rank #2 (Buy).