Pisani: BofA Starts 7 Home Builders as 'Buys'

January housing starts, at 591,000, was above expectations of 580,000, and the highest since July 2009. The prior month was revised upward as well.

Bullish on housing: BofA/Merrill Lynch initiating seven home builders with a "Buy" rating. Analyst Jonathan Ellis says, "we think a sustained recovery is now within a reasonable discounting period for the stocks."

What about a bottom in home prices? "Home sales have historically led pricing by 1-2 years so we do not expect price growth to be a benefit until 2011 at the earliest," Ellis wrote. (See:Housing Starts Bounce Back; Building Permits Fall)


1) What happened to the correction? The S&P 500, which dropped almost 100 points (about 9 percent) from its recent high in January to its February 8 low, has now retraced about 40 percent of its losses.

2) Deere up 7 percent pre-open, beat by a wide margin ($0.57 vs. $0.19 consensus) and raised its FY 2010 outlook, despite "global economic conditions that remain stubbornly weak." This is largely a cost-cutting story.

While the equipment sales outlook for 2010 was raised to up 6 to 8 percent, look carefully and you can see where the growth is. In 2010, analysts note, Deere expects North America ag equipment sales to be FLAT, Western Europe ag equipment sales to be DOWN 10-15 percent (!); and (3) South America ag equipment sales to be UP 10-15 percent. Construction and Forestry equipment sales to be DOWN 21 percent.

In other words, the growth is in Latin America in agricultural equipment; everywhere else is pretty poor.

3) Walgreen announced it is acquiring privately-held drugstore chain Duane Reade for $1.1 billion in cash. Expected to close at the end of August and be accretive to earnings by next year, the deal will more than triple Walgreen's stores in the New York City area.

4) Campbell falls 2 percent after cutting its revenue outlook for 2010. Half-way through its fiscal year, the food maker reaffirms earnings for the year, but that guidance falls mostly below estimates ($2.42-$2.46 vs. $2.46 consensus).

5) Talbots raised its Q4 sales guidance to a decline of 4 percent vs. prior expectations of a 6 percent to 8 percent drop. Analysts were expecting a 5.4 percent drop in sales. The improvement comes after the women's apparel retailer realized fewer markdowns. Additionally, the firm continues to see significantly stronger margins in the quarter.

6) OfficeMax reported a narrower-than-expected Q4 loss as sales declines eased and margins improved. However, same-store sales for the office supplies retailer fell nearly 7 percent due to lower small-business and consumer spending.

Looking ahead, the company sees sales slightly higher this year compared to last year, while analysts are only expecting flat sales.

7) General Growth responds to Simon Property buyout offer: "We and our board of directors have given considerable thought to your indication of interest and have concluded based on discussions with other interested parties that it is not sufficient to preempt the process we are undertaking to explore all avenues to emerge from Chapter 11 and maximize value for all the Company's stakeholders."

They would, however, "like to include Simon as part of this [bankruptcy] process."

In other words, we'll keep talking, but we're going ahead with our separate plans.

8) The Mortgage Bankers Association saw mortgage applications fall 2 percent last week as interest rates remained flat at 4.94 percent. The drop in applications for home purchases (down 4.0 percent) outpaced the decline in refinancing applications (down 1.2 percent).

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