Not every homebuilder is buckling under the pressure of rising rates. Last night, Palm Harbor Homes (Nasdaq: PHHM) reported healthy profitability and accelerated revenue growth. In the March quarter that capped off the company's fiscal year, the company posted a 22% spurt in revenue to hit $180.3 million. That came after growing the top line by only 15% through the first nine months of fiscal 2006.
Things only got better on the way to the bottom line. After earning just $0.01 per share in last year's final quarter -- before a onetime asset sale gain of $0.08 a share -- Palm Harbor Homes earned $0.14 a share this time around.
Analysts were gunning all over this one, as they tend to do when we're talking about limited coverage of small companies. The three firms following the stock had put out per-share estimate targets of $0.12, $0.14, and an outlandish $0.31. The median won out, though it now seems as though the company missed by a country mile, with the average of the three projections coming out to $0.19 per share when it didn't fare all that badly. Revenue came in comfortably ahead of the lone $170 million estimate.
What's the secret to Palm Harbor's success? Especially coming just hours after Toll Brothers (NYSE: TOL) hosed down its guidance? The difference is that Palm Harbor specializes in factory-manufactured and modular homes. They look a lot nicer than they sound. They are also aggressively priced, and that may appeal to prospective homeowners who have seen higher mortgage rates wash away their dreams of landing the idyllic picket-fence home with the wraparound porch.
With hurricane season now a week away, Palm Harbor is also a mixed opportunity. Lighter manufactured homes don't generally hold up as well, though Palm Harbor markets itself as a storm-tested builder. After the storms pass, demand for replacement homes spike, and that's where a business model like Palm Harbor's is great for getting folks back under sturdy roofs in a hurry.
Traditional homebuilders aren't necessarily struggling at the moment. Leading developers like Lennar (NYSE: LEN), D.R. Horton (NYSE: DHI) and Pulte (NYSE: PHM) are holding up well, thanks to a healthy backlog of orders. The key concerns here are what these backlogs will look like in a few quarters and whether home prices will have to dip to compensate for the less bang that homebuyers are getting out of their mortgaged buck. Palm Harbor should "weather the storm" a bit better than its more conventional rivals.
The market has already priced that in, unfortunately. The stock trades at a richer, double-digit earnings multiple than the larger developers. The premium may be money well spent, though, given the price that investors are willing to pay for a sturdier roof in this tenuous sector.
Looking to buy or sell your home? These are interesting times -- so arm yourself with knowledge by checking out our Home Center.
Longtime Fool contributor Rick Munarriz recently paid off his home, and he has no intention of looking for another one. He does not own shares in any of the companies mentioned in this story.
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