Analyst lowers predictions on Ryland earnings Homebuilding side triggers concern

November 21, 1992|By Ellen James Martin | Ellen James Martin,Staff Writer

A New York housing industry analyst issued an unfavorable report yesterday on Columbia-based Ryland Group, saying she is "increasingly uneasy about Ryland's short-term prospects."

The analyst, Barbara Allen of Oppenheimer & Co., said in a brief report that "homebuilding earnings are simply not recovering normally at this company, and we no longer believe that the problem is solely California." As a result she downgraded her earnings predictions for Ryland and removed her "buy" recommendation on the stock.

In trading on the New York Stock Exchange, Ryland's stock closed at $19.50 yesterday, down 75 cents.

A Ryland spokeswoman, Vice President Nancy Smith, declined to comment on the Oppenheimer analyst's report yesterday, except to say that "we certainly don't agree with it."

She said Ryland "historically does not comment on analysts' reports,and we don't intend to this time."

In an interview, Ms. Allen said she had been disappointed in recent Ryland earnings reports and has reduced her prediction for near-term earnings for the company. She is now predicting the company will earn $2 to $2.50 a share in 1993, compared with her previous prediction of $3.

"I think Ryland is underperforming its peer group, and I'd just like to see it get back on track," Ms. Allen said. Ryland builds homes throughout the United States and originates and services mortgages in many U.S. markets as well.

Ms. Allen said the homebuilding industry is beginning to experience a modest rebound but that Ryland is not faring as well as other large, publicly traded builders.

"The tide is rising and they [Ryland] should be as well. It really bothers me that the homebuilding side hasn't done better," Ms. Allen said.

She said the Ryland Group's mortgage banking operations are doing "very well," but questioned whether Ryland can continue to sustain the profitability in mortgage banking it has demonstrated this year.

Hoping a smaller executive corps could speed decision-making and make Ryland officials more responsive to customers, Ryland chief executive Roger Schipke has eliminated 10 of the 15 senior executive positions in Ryland Building Co., the core business unit of the Ryland Group, in recent months.

However, Ms. Allen said the leaner management hasn't translated into a scaled-back cost structure for Ryland.

At Legg Mason Wood Walker in Baltimore, analyst Michael L. Mead said he is retaining his "neutral" rating on Ryland's stock.

"Despite the fact that I think they really do an efficient job as the builder of entry-level housing, I do believe the housing markets are going to stay slow," Mr. Mead said.

He noted that Ryland's prospects will be affected by the California economy, which has been devastated by cuts in defense and construction jobs.

"Ryland does have exposure to California, and California looks like it's on a later cycle," Mr. Mead said.

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