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Thursday's ETF to Watch: iShares Dow Jones U.S. Home Construction Index Fund

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Close to three years after the bottom fell out of the housing market, home prices still remain weak and are even declining once again in many major markets. Recently, the 10 city Case-Shiller Index showed that home prices have fallen back into dreaded double dip territory, suggesting that further declines could be in the cards. As a result, many homebuilders and construction firms have seen stock prices plunge in recent weeks as a response. After all, if the homes that are already on the market are not being bought, there is little hope that new homes can be quickly sold either, especially considering the vast inventory that is already in the marketplace. Against this gloomy backdrop, investors will look to Lennar Corporation (NYSE: LEN  ) to set the record straight when it gives its quarterly earnings report before the bell today. 

Lennar Corp., the Miami-based homebuilder, is a major constructor of single-family and multi-level residential buildings across the country. The company is currently a $3 billion firm by market cap and at close to $18 a share, the stock is relatively close to its 52 week high, despite the weakness in the overall housing market. However, this could all change when the company gives its earnings report before the bell; LEN is expected to post profits of four cents a share on revenues of $642.8 million. Unfortunately for the company, this compares relatively unfavorably with last year, when the firm posted earnings of 21 cents a share on revenues of $814.5 million. It should also be noted that the year-ago period represents a time in which tax credits helped to boost sales for the company, and that since these conditions no longer exist, it could be a rough quarter when compared to the 2010 period [Homebuilder ETFs Fact a Tough Road Ahead].

Beyond the top and bottom line numbers, investors will likely hone in on new home orders and closings as spring tends to be a very robust period of home buying across much of the country. For the first quarter of the year, LEN saw new home orders fall by 12% and home deliveries drop by 3% suggesting that the weak job market and the general gloom over the economy may make it hard for LEN to bounce back in what is traditionally a very good quarter for the industry. In fact, analysts expect LEN to post a 2.8% decline in new home orders a nearly 19.3% drop in delivered homes, further highlighting the headwinds that both the company and the broader sector are up against in this difficult economic environment [Homebuilder ETFs in Focus as Market Stalls].

Thanks to this key earnings announcement, investors should look for the iShares Dow Jones U.S. Home Construction Index Fund (NYSE: ITB) to be in focus during today's trading session. The product allocates close to 7% of its total assets to LEN, enough to put the company in its top five holdings. As a result, any surprises from this construction giant could have a large impact on ITB's performance during Thursday trading. So, if LEN is able to beat estimates, despite the fact that the housing market appears to be very weak, it could send ITB to a solid performance. If, however, LEN is unable to match estimates or sees further weakness in the future, it could send this iShares fund further into the red on the year [see more on the ITB fact sheet].

[For more ETFs to watch sign up for our free ETF newsletter.]

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Disclosure: No positions at time of writing.

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Related Tickers

8/27/2015 3:59 PM
ITB $27.65 Up +0.61 +2.26%
iShares Dow Jones… CAPS Rating: **
LEN $51.31 Up +1.61 +3.24%
Lennar Corp CAPS Rating: ***