Pulte Homes Chucks the Kitchen Sink at Shareholders

Where would we be without subprime debacles and homebuilder horror stories?  The hits just keep coming.

While our readers cool their heels waiting for Warren Buffett’s bid for Hovnanian to materialize, we will turn it over to Carl Reichardt, who has covered manufactured housing and homebuilders long enough to remember when Warren Buffet actually did buy a housing company.

“Pulte’s impairment charge is the largest taken in a single quarter by a public home builder in the current cycle,” wrote Wachovia analyst Carl Reichardt in a report to clients.
“With no clear indication of price or absorption stabilization, we believe Pulte’s results signal substantial impairment activity for most other builders who have not yet reported it,” he said. Marketwatch

Not only is the impairment charge the largest by a builder, but it wipes out nearly 10% of Pulte’s book value in a single swipe. No doubt these charges will become trendy with the builders.  Everyone is doing it, after all.

We have been expecting the stocks to trade a little closer to trough valuations before we call for an end to the carnage, and so does this guy:

Robert Stevenson at Morgan Stanley called the expected charge “staggering.” He added: “This news reaffirms our belief that book value is likely to experience continued erosion, and that valuations have yet to trough.

Warren must be biding his time. Or perhaps eating a steak at Borat’s.  Sitting on his hands sure beats Carl Icahn’s strategy with WCI Homes. He was a tad early.

And if Pulte trades down to roughly 50% of book like it did in 2000 and 1990, then you might want to keep a little powder dry. That kind of price performance would only make one type of investor happy.

And then they would probably cover.

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