Wall Street Analysts Intentionally Misleading Investors?
After its most recent earnings report, a number of Wall Street Equity Analysts upgraded SPF. That fact that it was a number is what is potentially a little unsettling.
Standard Pacific (SPF) just came out with their earnings report and generated about $933 million in revenues after liquidating out of two markets and liquidating thousands of lots. After receiving a tax rebate, Standard Pacific could have over $400 million cash in the bank assuming no expenditures or revenues between the end of the year and the date of the cash receipt. But after paying its payables, employees, debt P&I payments, and JV obligations, much of the cash would evaporate quickly especially if it chose to pay off its revolver which it is currently violating.
At the end of the quarter, SPF started a bunch of homes. SPF concentrates its revenues in CA, FL, and AZ....some of the most challenged markets in the country. Many of the homes SPF builds are in the higher price catagories. The following is an excerpt from the Union Tribune:
Suzie Ek, vice president of sales and marketing for Standard Pacific Homes in San Diego County, said that her company has created smaller-than-average homes in Santee at the Stoney Creek at Riverwalk development. Seventy-one detached single-family houses range in size from approximately 1,818 to 2,607 square feet. The two-story homes range in price from the low $500,000s to $550,000.
It appears that SPF is downsizing to homes STARTING at $500K. How many people can afford a $500K house with current lending standards. After paying 20% down, you need an income of over $150K. SPF has over 1000 spec homes under construction in the current slowing sales environment.
SPF lists inventory on its books at $2.1 Billion dollars. They recently sold some land at about $0.40 on the dollar. If the rest of SPF's inventory is booked at similar inflated values, than SPF's inventory is worth something closer to $1 Billion dollars. That is a problem when you have almost $2 Billion dollars of debt outstanding.................which doesn't even include another $1 Billion of OFF BALANCE sheet JV debt.
SPF has about $1.4 Billion dollars of Senior Debt and another $600 million of payables and subordinated debt. If its assets cannot even cover the Senior Debt holders, how can EQUITY analysts upgrade this company? The Equity Analysts know that the carrying value on the books is no where close to the market value simply from SPF's recent sales, other builder's recent sales, and the fact much of SPF's land has NOT been impaired yet.
Further, how can analysts use improved liquidity as a basis for the upgrade when SPF likely started a bunch of homes at the end of the quarter that is going to consume millions to construct?
Based on an article in the Street.com, we know that SPF is working with the Blackstone's RESTRUCTURING GROUP. Without having the assets to cover the SENIOR Debt outstanding, and orders coming in about 40% BELOW last years reduced levels, why would equity analysts upgrade the stock?
There just seems to be little factual basis to have a improved outlook for the equity of a company that is IN VIOLATION of its debt covenants for the third time, working with a professional RESTRUCTURING group, and assets worth only a fraction of SENIOR debt oustanding with sales slowing materially from last years already lowered levels.
How can equity analyst's think SPF's stock has any value when its assets are likely worth less than half its debt, margins evaporating, and revenues slowing to a trickle compared to just a few years ago?
Centex's analysis may prove to be even more interesting.