One of the smallest national homebuilders, Brookfield Homes (NYSE:BHS), will report first-quarter 2007 financial results on Friday, May 4.

What analysts say:

  • Buy, sell, or waffle? Brookfield's small size -- its market cap is less than $1 billion -- means it's flying below most analysts' radar. Only two cover Brookfield; one says "hold," while the other says "sell."
  • Revenues. Only one of them has provided an estimate on revenues. He's expecting revenues to grow 9% to $156 million for the quarter.
  • Earnings. Profits are expected to fall, but unlike the other homebuilders, Brookfield is still forecast to construct a profit: $0.25 per share, a 68% drop from last year's results.

What management says:
Being a small builder can have its drawbacks, in that it can't command the same negotiating power that Hovnanian (NYSE:HOV), Centex (NYSE:CTX), or even Motley Fool Hidden Gems recommendation MDC Holdings (NYSE:MDC) can. Yet it also means the company can respond more nimbly to market conditions than its competition. In 2006, Brookfield wrote down only $3 million worth of property, primarily in Los Angeles and the Washington, D.C. area. With a majority of land inventory that it has owned or controlled since before 2004, Brookfield's president and CEO Ian Cockwell believes the company is "well positioned to generate strong operating margins and create shareholder value."

What management does:
Because of its limited exposure to the housing market -- it generally sells luxury homes in only a handful of markets -- Brookfield has been able to maintain margins above industry levels. Yet Washington, D.C. and California have also been some of the most volatile areas affecting housing. That's forced the company to offer greater incentives and amenities, which ate into profits.

Margin

12/05

03/06

06/06

09/06

12/06

Gross

33.8%

34.3%

34.7%

34.8%

30.6%

Operating

33.6%

33.4%

33.5%

33.2%

29.2%

Net

17.8%

17.9%

19.1%

19.7%

16.7%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
When I was in the D.C. area this past February, I took a tour of a number of Brookfield homes and found that they did offer a lot of upgrades for the money. The planned communities look thoughtfully laid out, providing community centers that help meld a division together.

Yet for all its size and nimbleness, Brookfield is highly leveraged, which should prompt caution when considering the stock as an investment. At 35%, MDC Holdings has one of the lowest total debt-to-capital ratios in the industry. Brookfield, on the other hand, has a 58% DTC ratio, exceeding those of Hovnanian (58%), Centex (55%), Ryland (NYSE:RYL) (38%), and Lennar (NYSE:LEN) (37%). MDC, Ryland, and Lennar should be better able to capitalize on market opportunities than some of their more highly leveraged competitors.

Related Foolishness:

Brookfield Homes has earned a one-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock rating service by joining today. It's free!

MDC Holdings is a recommendation of Motley Fool Hidden Gems. A 30-day trial subscription lets you build up an understanding of why this homebuilder is different than the rest.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.