S&P vs. Alstry on RYL
4/18/2008 S&P MarketScope, Stocks In News
09:47 am ET ... S&P MAINTAINS HOLD OPINION ON
RYLAND GROUP SHARES (RYL 33.68***): Ahead of April 24 release of Q1 results, we estimate revenue of $665M, down just 6% from a year ago as quarterly comparisons appear to be getting easier for RYL and other builders. We look for a $0.50 loss compared to Street's mean estimate of an $0.88 loss. We see RYL as one of the better-managed builders, with below-average asset impairments compared to peers, at $673M since the beginning of '06. RYL was not aggressive, inour view, in buying land inventory at the peak of the housing market in '05. We see strength in its balance sheet, with most debt maturing in 2011 or later. /K. Leon-CPA
Last year RYL ended Q4 with about $1.3 Billion in backlog and twice as many specs as this year. In a better selling environment and twice as many specs, RYL generated about $700 million in revenues or converting something better than 55% of backlog.
This year, RYL ended the quarter with about $786 million of backlog and half the specs of last year in a much more difficult selling environment. With half the specs, if RYL were to convert a similar backlog percnetage, they would be lucky to generate $400 million in revenues.
Factoring the lower spec count and more difficult selling environment, it is more likely RYL will only be able to generate about $325 million in revenues at much lower margins(save material land sales).
Currently, consensus analyst estimate is about $458 million, or higher than last years conversion rate when the company had twice as many specs and a better selling environment?
S&P is estimating revenue of $665 million, or over $200 million higher than current analyst consensus estimates(approximately 40% more). If RYL did generate $665 million, that would be an 85% backlog conversion. Very impressive in the current distressed environment absent a major land sale. Further it would eclipse last years conversion percentage when RYL had twice as many specs.
With only $786 million of ending backlog last quarter, it seem highly unlikely that RYL will generate anything close to $665 million unless of course RYL sells a bunch of land. If RYL does in fact sell land, we know that current prices are very depressed. So depressed that it would seem impossible that RYL would only lose $0.50 cents. S&P says RYL will accomplish both? Much higher sales and much lower losses than consensus....we will see.
My estimatge is for RYL to generate $300 to $400 million in sales from houses and lose about $1.50-$2.00 per share.....but if in fact RYL does sell a lot of land to raise cash, than losses may likely exceed $3.50 per share(7X S&P's estimate).
It looks like we see things pretty much eye to eye.