Skip to main content
Basch Report
Jax Daily Record Thursday, Oct. 3, 201905:10 AM EST

Homebuilders upgraded on strong demand; Rayonier AM reaches debt deal

Share
As construction jobs rebound in North Florida, analysts say KB Home, Lennar Corp. and Toll Brothers will benefit from low mortgage rates.
by: Mark Basch Contributing Writer

Home construction is a major growth engine for the Jacksonville area, so when construction jobs in Northeast Florida suddenly declined last winter, it was a troubling sign for the economy.

However, as summer ended, the homebuilding market pointed up again.

The latest payroll data for the Jacksonville area showed a surge in construction jobs in August.

Last week, analysts at Raymond James upgraded their ratings on four companies that build homes in the market.

“While improving demand amid lower mortgage rates is hardly a secret by now, we are compelled to make a move now after fully reviewing the mosaic revealed from our Top 25 homebuilding market analysis,” the analysts said in their report.

“In our view, the August data demonstrated a decided (and perhaps under-appreciated) inflection in supply and pricing conditions, revealing a far more bullish backdrop for homebuilders into year-end.”

In February and March, Jacksonville area construction companies reported a decline in jobs over the previous 12 months, according to the Florida Department of Economic Opportunity. 

That was the first year-over-year decline in construction jobs since 2012 and followed double-digit percentage gains in jobs in the winter of 2018.

By August, construction job growth was back to 8% in Northeast Florida, the state agency reported.

Meanwhile, August data from some of the nation’s top markets prompted the Raymond James analysts to upgrade their ratings on KB Home, Lennar Corp. and Toll Brothers Inc. from “market perform” to “outperform.” They also rated MDC Holdings Inc. as a “strong buy.”

Although they are bullish on the industry, the analysts said those stocks have been valued below their peers and have more room to increase in price.

“Are we chasing the stocks here? Yes, we are. Guilty as charged. But we think perhaps better late than never,” they said.

“We believe the data is now crystal clear. Homebuyers have responded in force this summer to the opportunity afforded by unexpectedly low mortgage rates, wholly shrugging off any potential concerns about the macroeconomic or political climate.”

The analysts said the inventory of available homes is shrinking.

“Buyers have been snapping up homes at a quickening pace, particularly at entry-level price points,” they said.

More good news on the housing market last week came from Jacksonville-based mortgage technology company Black Knight Inc.

Black Knight said 36,200 U.S. mortgage loans began the foreclosure process in August, the lowest number of monthly foreclosure starts since December 2000.

It also said the number of loans in active foreclosure was 253,000, the fewest since 2005.

Rayonier AM reaches debt agreement

Rayonier Advanced Materials Inc. previously said it could be in breach of loan covenants at the end of the third quarter.

It announced Monday it reached an agreement with lenders to avoid that.

The Jacksonville-based maker of cellulose specialties products said lenders agreed to several amendments to alter the terms of its debt.

“We believe we now have the runway to manage the business through these challenging economic conditions, enabling us to emerge financially stronger and able to realize the earnings potential of our business,” CEO Paul Boynton said in a news release.

Rayonier AM disclosed the possible breach in its midyear financial report as it reported losses of $37 million for the first six months of the year. The company said price declines for commodity products have affected results.

The company already had taken steps to conserve cash, including suspending dividend payments on its common stock last month.

Rayonier AM had been paying 7 cents a share in dividends each quarter and will save $18 million a year that it would be paying out at that rate.

Mixed third quarter for stocks

Rayonier AM’s announcement came after the final closing bell of the third quarter Monday afternoon, too late to help a stock that was the worst performer among Jacksonville-based companies.

Rayonier AM dropped to record lows after its financial report and ended the third quarter down 33%.

In a quarter when the overall markets went up and down but ended little changed, Jacksonville companies produced mixed results as well. Nine stocks finished higher, nine were lower and one was unchanged.

Among stocks trading above $1, the best performers were the two Fidelity companies: Fidelity National Financial Inc. and a company it spun off, Fidelity National Information Services Inc., or FIS.

Fidelity National Financial rose 10% in the quarter, remaining steady even after its proposed merger with another title insurance company,  Stewart Information Services Corp., was rejected by antitrust regulators last month.

Bank technology company FIS benefited from its acquisition during the quarter of payments processing company Worldpay Inc., rising 8%.

The Dow Jones industrial average and S&P 500 index both rose 1.2% in the third quarter.

Analyst sees growth for Ameris

Piper Jaffray analyst Brett Rabatin last week lowered his earnings estimates for Ameris Bancorp following its acquisition of Fidelity Southern Corp., but he expects to see growth from Ameris once the dust settles.

“We are more comfortable thinking that pushback around a sizable deal (Fidelity Southern) will fade over the next few quarters,” Rabatin said in a research note.

“We continue to believe Ameris has significant opportunities in Atlanta and Florida to post solid growth over the next year, and profitability should be stronger than peers.”

The acquisition of Atlanta-based Fidelity Southern, completed July 1, coincided with the resignation of CEO Dennis Zember and appointment of Fidelity Southern President Palmer Proctor as Ameris’ new CEO.

Rabatin said the merger and CEO change created “substantial noise” among investors, but he doesn’t expect any more acquisitions by Ameris and thinks the company will generate strong returns once Fidelity Southern is integrated.

“While we do not think of Ameris as a seller, the franchise over the next two years should be more dearly valued given its geographic positioning in attractive markets,” he said.

Rabatin lowered his earnings estimate for this year by 20 cents to $3.87 a share and because of the lower forecast, he reduced his price target on the stock by $1 to $46, with the stock priced at $39.59 at the time of his report. He maintains an “overweight” rating on the stock.

Ameris officially is headquartered in Moultrie, Georgia, but its executive offices are in Jacksonville.

Converged Communications is acquired

The Cook & Boardman Group announced Monday it acquired Jacksonville-based Converged Communications Inc., a technology solutions company founded in 1985.

Terms of the deal were not disclosed.

Winston-Salem, North Carolina-based Cook & Boardman is a specialty distributor of commercial door entry and systems integrations services.

The company said Converged Communications will operate as a division of its A3 Communications subsidiary. 

Related Stories

Advertisement