CalAtlantic Group Inc (NYSE:CAA) — CalAtlantic is the sixth-largest homebuilder in the U.S., by market cap. It was formed on Sept. 30, 2015, by the merger of Ryland Homes and Standard Pacific.
On Feb. 10, Standard & Poor’s Capital IQ reiterated its “buy” opinion on CAA, raising their 12-month price target by $5 to $40, which is 10.7X their 2017 earnings per share estimate. And, they also increased their 2017 EPS estimate to $3.75, up 33 cents, and re-set the 2018 estimate to $4.29.
They were obviously encouraged to increase their forward earnings due to CalAtlantic’s Q4 EPS of $1.25, which was 16 cents above the Capital IQ consensus. Q4 home sale revenues increased 18%, and so they forecast sales growth in 2017 by 7.3%, encouraged by a 4% backlog in Q4 2016.
S&P’s opinion is that the industry will have another good year in 2017 due to rising consumer confidence and higher employment. It also appears that supplies will be reasonably priced, and low mortgage rates with accompanying good demand from first-time homebuyers should also support new home construction.
Following a low in February 2016 at close to $28, CAA stock rallied to a high at over $40 in four months. However, it failed to hold the high but formed a quadruple bottom at about $31. It sustained the support, and in November buyers emerged to break the bearish resistance line.
From December to the present, CAA has been consolidating around its 200-day moving average at $35, where it could be bought. Thus traders should buy CAA at $35 with a target of $40-plus for a proposed return of 14%-plus.
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