2023-12-31 07:48:08 ET
Summary
- Anywhere Real Estate is experiencing a huge rally in its stock due to a decline in interest rates and a solid third quarter.
- The company has done a good job implementing cost savings and reducing the debt on its balance sheet. The stock saw some insider buying in November as well.
- Do the shares have more room to run or is the stock vulnerable to profit taking as we head into 2024? An analysis follows in the paragraphs below.
The truth is not good or bad, it is just the truth ."? J.B. Thomas
Today, we put Anywhere Real Estate ( HOUS ) in the spotlight for the first time. The rapid decline in interest rates since late October has triggered a large rally in this housing sector related concern. December pending home sales fell just four percent on the year-over-year basis. This was the smallest drop since March of 2022 when the Federal Reserve began to lift interest rates. The stock also saw some insider buying in the shares in November. Can the rally continue in 2024? An analysis follows below.
Company Overview:
Anywhere Real Estate is based in Madison, NJ and operates from three main business segments: Anywhere Brands, Anywhere Advisors, and Anywhere Integrated Services. Its Brands business franchises under well-known names like Century 21, Coldwell Banker, Corcoran, ERA, and Sotheby's. Its Advisors sell homes under these same names while Integrated Services provides title, escrow, and settlement services to consumers, real estate companies and other financial entities. The Advisors part of the business provides over 80% of overall revenue it should be noted. The stock currently trades just above eight bucks a share and sports an approximate market capitalization of $920 million.
October Company Presenation
Third Quarter Results:
Anywhere Real Estate posted its Q3 numbers on October 24th. It was an impressive quarter. The company posted GAAP EPS of $1.17 a share, more than 80 cents above expectations. Anywhere Real Estate accomplished this despite revenues falling just over 11% on a year-over-year basis to $1.6 billion which was in line with expectations.
October Company Presentation
The company was particularly focused on improving its balance sheet during the quarter. Management reduced debt by $281 million through successful debt exchanges as well as open market bond repurchases. It also closed a revolver. These actions produced most of the earnings 'beat'. Anywhere produced free cash flow of $95 million for the quarter, which was slightly below the $99 million it produced in the same period a year ago.
October Company Presentation
The company has now taken out $160 million from its cost structure in FY2023 via various initiatives ($60 million in the third quarter) and should beat its goal of $200 million of cost savings for the fiscal year. Most of the savings have come from reducing the company's footprint as well as its headcount.
October Company Presentation
During the quarter, transactions fell by 18% from the same period a year ago even as the average sales price rose five percent. Commission splits improved 55 bps during the quarter as well.
October Company Presentation
October Company Presentation
Analyst Commentary & Balance Sheet:
The analyst community is not sanguine on the company's near-term prospects. Since third quarter results were posted, three analyst firms including Stephens reissued Hold ratings on the stock. JP Morgan downgraded the shares to Underweight from Neutral in mid-December as well. Price targets proffered range from $5.50 to $7 a share. The analyst at JP Morgan is ' worried about competition for agents, adding HOUS's balance sheet is highly leveraged, and hence, any small changes in the dynamics can have a big impact. '
Approximately eight percent of the outstanding float in the shares is currently held short. Two directors bought just over $160,000 worth of shares in November. There was some smaller insider buying in the equity in August as well. There have been no insider sales in the stock in 2023.
October Company Presentation
The company has now reduced debt by some $900 million since the end of 2019. It also has extended debt maturities and improved the flexibility of its balance sheet as well. The company ended the third quarter with just over $150 million worth of cash and marketable securities on its balance sheet against just under $2.6 billion of long-term debt.
Verdict:
The company made 28 cents a share in FY2022 on $6.91 billion in sales. The current analyst consensus sees HOUS losing 87 cents a share in FY2023 as sales fall to $5.67 billion. They do see the company rebounding in FY2024 with profits of 27 cents a share on $5.92 billion in sales.
The stock has nearly doubled now from its October 19th low. The company will see a significant loss in FY2023 as sales fall some 18%, even with a solid third quarter. Analysts are projecting a rebound in FY2024 where HOUS will again become profitable. However, given the uncertainty around a housing market rebound and whether the Federal Reserve will be able to achieve a rare 'soft landing', paying 30 times projected FY2024 EPS seems more than a stretched valuation. In addition, there was a recent litigation win around real estate commission rates that could eventually impact the entire industry. Therefore, I think the analyst firms have this one right and the stock should be avoided at current trading levels.
Nothing can stop a lie whose fashion has come ..."? Thomas Williams
For further details see:
Anywhere Real Estate: Rally Looks Overdone