Pulte down after backing quarterly view

BOSTON (MarketWatch) -- Pulte Homes Inc.'s stock was down Tuesday in volatile trading after the home builder backed its fourth-quarter outlook and said it has amended its credit facility, while a closely watched index of home prices pointed to further deterioration in the housing market.

The Bloomfield Hills, Mich.-based company (PHM) after Monday's closing bell said despite continued weak demand for housing and elevated inventories, it is standing by its earlier fourth-quarter outlook for profit before impairment charges and cash position.

When Pulte reported third-quarter results in October, it forecast income from continuing operations in the fourth quarter in a range from break-even to 10 cents a share, not including any additional impairments, land-related charges or goodwill impairment.

Chief Executive Richard Dugas in a statement Tuesday said the company continues to solidify its balance sheet. The company is "selling and closing standing inventory and lowering overall land investment levels, all in an effort to generate cash and give Pulte maximum flexibility entering 2008," the CEO said.

Pulte and several other home builders are scheduled to present later Tuesday at the J.P. Morgan Homebuilding and Building Products Conference in Las Vegas. Analysts and investors will be looking for any color from executives on the housing market and a potential bottom.

Home-builder stocks have been battered this year on losses and impairment charges, weakening home prices and the subprime fallout. Heading into Tuesday's trading session, shares of Pulte were off more than 70% so far in 2007.

The home-builder sector was mostly lower one day after the stocks plunged after an analyst at Citigroup downgraded several of the group's largest names.

Builders are among the most-shorted stocks and many investors are betting that some won't survive the current housing pullback and will be forced into bankruptcy.

Separately, Pulte in a regulatory filing Tuesday said it has amended its revolving credit facility to decrease the required tangible net worth minimum to $4 billion, plus 50% of cumulative net income, without deduction for losses, for each quarter.

The amendment also added a borrowing-base limitation when Pulte doesn't have investment-grade ratings from at least two of the three major ratings agencies: Fitch, Moody's and Standard & Poor's. The limitation would be based on the company's inventory. Total capacity under the revolving credit facility remains at $1.86 billion, according to the filing.

Pulte, the nation's second-largest home builder measured by 2005 deliveries, is "well-positioned to take advantage of significant demographic tailwinds," wrote Morningstar Inc. analyst Eric Landry in a recent report on Pulte. "Unfortunately, though, it entered the current downturn with too much land and debt, a condition that may hinder its prosperity once demand picks up."

Analysts at Soleil Securities Group this week initiated coverage of several home-builder stocks, including Pulte, which it started with a neutral rating and an $11 price target.

"Although we believe Pulte has a strong growth strategy through its focus on the active adult segment, we remain cautious that the company's high concentration in some markets could result in a more sluggish recovery," wrote analysts Anna Torma and Keri McGreevy in a report.

"Pulte's national presence, with a unique strategy of serving the full range of buyer segments and significantly higher emphasis in the active adult segment than its competitors, should enable the company to drive growth in a recovery," the Soleil analysts said. "However, we believe the active adult segment will likely underperform in this downturn, and we remain cautious regarding Pulte's exposure to weak markets."

Pulte stock was down 3.5% to $8.84 at last check in afternoon trading following a report that home prices fell 1.7% in the third quarter compared with the second quarter, and were down a record 4.5% in the past year, according to the S&P/Case-Shiller home price index.

One of the biggest factors standing in the way of a housing recovery is buyers' lack of confidence in home prices and fears that a house will decline further in value after it is purchased, said Don Tomnitz, chief executive of D.R. Horton Inc. (DHI) , at the building conference Tuesday sponsored by J.P. Morgan Chase & Co.

The CEO added that he hasn't seen price stability in markets yet, but that it will be achieved in 2008. He said the home builder with the strongest balance sheet "wins this downturn."

Meanwhile, David Blitzer, chairman of the index committee at Standard & Poor's, said weak consumer sentiment is pulling down the housing market. "Everyone feels home prices will go down, so why rush," Blitzer said Tuesday on CNBC.

More important housing data is expected later this week with the release of October existing and new home sales on Wednesday and Thursday, respectively.

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