On Wednesday, the U.S. Senate passed an extension of the tax loss carry-back period to five years from its current two years for losses incurred in 2008 and 2009, and House approval is likely soon. This is a huge gift for the large homebuilders, and one that will allow companies already swimming in liquidity to fill their cash coffers even higher. It appears that the extension puts profits earned in 2003, 2004, and 2005--the industry's most profitable three-year period ever--back into play. As it stands, we estimate that the14 public builders we track have compiled deferred tax assets totaling more than $7.5 billion over the past two years. These assets are not reflected on the balance sheets, as auditors in all cases have demanded the companies set up full valuation allowances. As a result of this legislation, most of these assets will come back onto the balance sheets as income tax receivables, then will be converted to cash by early next year.In aggregate, we estimate the 14 builders we cover hold more than $14 billion in cash against about $23.5 billion in homebuilding debt. If the builders are able to capture the majority of their fully reserved deferred tax assets, they would be put in the unprecedented position of having almost negligible net debt. M.D.C. Holdings MDC and NVR NVR already have more cash than debt (though NVR would realize no benefit from the pending legislation, as it has no losses to carry back), while Toll Brothers TOL, M/I Homes MHO, Ryland RYL, and Standard Pacific SPF will carry close to no net debt if they can monetize all of their deferred tax assets. A few builders actually have more losses than profits since 2003 and won't be able to access the entire amount. In aggregate, however, we expect the group to monetize most of its deferred tax assets, resulting in a huge windfall. Builders that stand to benefit most from the legislation are those with the stressed balance sheets, such as Orleans OHB, Beazer BZH, and to a lesser extent Hovnanian HOV. Investors should expect a large increase in tangible book values almost across the industry starting with the next quarterly reports, as companies bring assets back on their balance sheets and take advantage of the gift given them by Washington. Believe it or not, we're a bit concerned that the builders we cover won't be able to find opportunities to allocate such a massive amount of capital. Land is not coming back to market as most thought at this point in the cycle, making large land purchases at favorable prices unlikely in the near future.
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M/I Homes, Inc., Toll Brothers, Inc., Pulte Homes, Inc., KB Home, Beazer Homes USA, Inc., Meritage Homes Corporation, D.R. Horton Incorporated, Ryland Group, Inc., Lennar Corporation, NVR, Inc., M.D.C. Holdings, Inc.
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More Analyst Research
M/I Homes, Inc. Full Analyst Report
Analyst Notes
11-09-09 | 5:13PM More Thoughts on Tax Loss Carry-back
07-30-09 | 11:17AM M/I Homes 1Q Results Impressive
07-17-09 | 12:37PM Housing Starts Rise in June
06-30-09 | 4:57PM Case-Shiller Shows Improvement in April
05-19-09 | 9:07AM M/I Homes to Issue Shares
More Analyst Research
Toll Brothers, Inc. Full Analyst Report
Analyst Notes
11-11-09 | 10:53AM Toll Reports Preliminary 4Q Results
11-09-09 | 5:13PM More Thoughts on Tax Loss Carry-back
08-27-09 | 9:45AM Toll Reports 3Q Results
08-12-09 | 10:17AM Toll Reports Preliminary 3Q
07-17-09 | 12:37PM Housing Starts Rise in June
06-30-09 | 4:57PM Case-Shiller Shows Improvement in April
06-03-09 | 10:27AM Toll Reports 2Q Results
05-20-09 | 9:09AM Toll Reports Preliminary 2Q Results
More Analyst Research
Pulte Homes, Inc. Full Analyst Report
Analyst Notes
11-09-09 | 5:13PM More Thoughts on Tax Loss Carry-back
11-04-09 | 12:22PM Pulte's Tangible Book below Expected
08-11-09 | 9:45AM Pulte Tendering for Debt
08-04-09 | 9:34AM Pulte and Centex 2Q Results
07-17-09 | 12:37PM Housing Starts Rise in June
06-30-09 | 4:57PM Case-Shiller Shows Improvement in April
05-18-09 | 11:11AM Pulte Directors Come Up Short
More Analyst Research
KB Home Full Analyst Report
Analyst Notes
11-09-09 | 5:13PM More Thoughts on Tax Loss Carry-back
10-12-09 | 9:00AM KB Home Reveals Investigation
09-25-09 | 11:01AM KB Home Reports 3Q Results
07-17-09 | 12:37PM Housing Starts Rise in June
06-30-09 | 4:57PM Case-Shiller Shows Improvement in April
06-26-09 | 10:59AM KB Home Reports 2Q Results
More Analyst Research
Beazer Homes USA, Inc. Full Analyst Report
Analyst Notes
11-09-09 | 5:13PM More Thoughts on Tax Loss Carry-back
08-06-09 | 6:12PM Beazer Reports 3Q Results
07-17-09 | 12:37PM Housing Starts Rise in June
07-02-09 | 3:25PM Beazer Settles with Government Agencies
06-30-09 | 4:57PM Case-Shiller Shows Improvement in April
05-11-09 | 10:12AM Beazer Reports 2Q Results
More Analyst Research
Meritage Homes Corporation Full Analyst Report
Analyst Notes
11-09-09 | 5:13PM More Thoughts on Tax Loss Carry-back
07-28-09 | 9:44AM Meritage Reports 2Q Results
06-30-09 | 4:57PM Case-Shiller Shows Improvement in April
More Analyst Research
D.R. Horton Incorporated Full Analyst Report
Analyst Notes
11-20-09 | 10:36AM D.R. Horton Reports 4Q Results
11-09-09 | 5:13PM More Thoughts on Tax Loss Carry-back
08-04-09 | 11:14AM D.R. Horton Reports 3Q
07-17-09 | 12:37PM Housing Starts Rise in June
06-30-09 | 4:57PM Case-Shiller Shows Improvement in April
More Analyst Research
Ryland Group, Inc. Full Analyst Report
Analyst Notes
11-09-09 | 5:13PM More Thoughts on Tax Loss Carry-back
11-09-09 | 9:28AM Ryland under Review
07-31-09 | 1:17PM Ryland Sales Continue to Plummet
07-17-09 | 12:37PM Housing Starts Rise in June
06-30-09 | 4:57PM Case-Shiller Shows Improvement in April
More Analyst Research
Lennar Corporation Full Analyst Report
Analyst Notes
11-09-09 | 5:13PM More Thoughts on Tax Loss Carry-back
09-21-09 | 11:51AM Lennar Reports 3Q Results
07-22-09 | 11:52AM LandSource Reorganization Cleared
07-17-09 | 12:37PM Housing Starts Rise in June
06-30-09 | 4:57PM Case-Shiller Shows Improvement in April
06-25-09 | 10:07AM Lennar Reports 2Q Results
More Analyst Research
NVR, Inc. Full Analyst Report
Analyst Notes
11-09-09 | 5:13PM More Thoughts on Tax Loss Carry-back
10-21-09 | 11:44AM Putting NVR Under Review
08-27-09 | 9:45AM Toll Reports 3Q Results
07-23-09 | 11:39AM NVR Continues Profitability
07-17-09 | 12:37PM Housing Starts Rise in June
06-30-09 | 4:57PM Case-Shiller Shows Improvement in April
More Analyst Research
M.D.C. Holdings, Inc. Full Analyst Report
Analyst Notes
11-09-09 | 5:13PM More Thoughts on Tax Loss Carry-back
11-02-09 | 10:40AM M.D.C. Reports 3Q Results
08-03-09 | 11:18AM Our Take on M.D.C.'s 2Q Results
07-31-09 | 9:10AM M.D.C. Reports Decent 2Q Results
07-17-09 | 12:37PM Housing Starts Rise in June
06-30-09 | 4:57PM Case-Shiller Shows Improvement in April
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