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Wedbush
October’s sequential existing-homes sales increase of 2.0% and above-consensus expectations marks the second consecutive month of mid-single-digit growth, achieving a 9.5-year record high.
The 5.9% increase year-over-year and seasonally adjusted annual rate (SAAR) of 5.60 million beat consensus expectations by 330 basis points as existing-home sales surged past the June 2016 record levels. October’s sales nearly reached the February 2007 peak, putting calendar 2016 SAAR on track for mid-single-digit growth, which is consistent with industry expectations. October was the fourth straight month which saw a decline in median prices; despite a slight decrease in inventories, lower pricing and improved credit availability could support higher first-time buyers.
Thus, we believe underlying trends remain consistent with our estimate for low- to mid-single-digit growth spending and generally consistent with the Repair and Remodel (R&R) outlook statements provided by management teams in our coverage universe. With majority of residential RR spending completed 12 months subsequent to the purchase of a home, companies that should continue to benefit based on the percent of revenue exposed to residential R&R spending include Trex (ticker: TREX) at 87%,
Beacon Roofing
Supply (BECN) at 80%,
USG
(USG) at 49%,
Quanex Building Products
(NX) at 46% and
Masonite International
(DOOR) at 43%. Other coverage names with a slightly lower estimated percentage of revenue from residential R&R exposure include
Owens Corning
(OC) at 35%,
Gibraltar Industries
(ROCK) at 32%, Pool (POOL) at 28%,
Builders FirstSource
(BLDR) at 25% and Headwaters (HW) at 25%.
The National Association of Realtors (NAR) released existing-home sales for October 2016, which rose 2.0% to a SAAR of 5.60 million from the revised September 2016 estimate of 5.49 million. October’s reading was up 5.9% from the October 2015 rate of 5.29 million. Consensus estimate was 5.43 million, or a 0.7% decrease sequentially. In terms of mix, single-family housing (SFH) sales were up 2.3% month-over-month (MoM) to a 4.99 million SAAR, while existing condo and co-op sales were flat sequentially. Distressed home sales (defined as foreclosures and short sales) accounted for 5% of all sales in October, up from September’s record low of 4% (lowest level since October 2008) and down from 6% in October 2015.
— Al Kaschalk
— Misha Levental
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