Citigroup was dominating the stock market on two fronts Monday
as it took a long look at homebuilder stocks and found them wanting and then
saw its own stock take a hit on the basis of its perceived short-term fortunes
growing out of the sub prime mortgage market.
Late Monday morning one of Citigroup's analysts, Stephen Kim, downgraded
the entire homebuilding sector because he could not find anything to suggest
that the residential housing market would improve until the second quarter of
Kim downgraded stocks of seven of the largest homebuilders
from a rating of "buy" to hold; Centex Corp., D.R. Horton, KB Home, Lennar Corp,
Pulte Homes, Ryland Group, and Standard Pacific Corporation. Meritage Homes
Corp's rating was changed to "sell" from "hold" but Beazer Homes, Hovnanian
Enterprises, M.D.C. Holdings, and Toll Brothers managed to keep their "hold"
Kim also revised downward his target prices on all of the homebuilder stocks.
The ratings change came as declining home sales made analysts and investors
alike skittish about the ability of some builders to hang on during what may
be a protracted return to a healthy home building economy. In recent weeks Levitt
and Sons and a number of its subsidiaries have filed for Chapter 11 because
of the rapidly deteriorating housing market in Florida and nearby states and
rumors abound about other companies including Tousa, Inc and Beazer. Most builders
have admitted that they are suffering as customers cancel existing home contracts
and the companies have been forced to lose deposits as they themselves cancelled
pending agreements to purchase land.
Because of the Citigroup report KB Homes closed at $19.78, down nearly 9 percent;
Hovnanian, which had taken multiple hits to its value since it was sailing near
$40 a share earlier in the year, lost .28 to close at $6.97; and Pulte was down
4.47 percent to close at $9.20.
At the same time, Citigroup's stock fell close to 6 percent
on rumors that it could be laying off 45,000 employees because of massive mortgage
losses. This would be in addition to the layoffs of 17,000 employees or 5 percent
of the corporation's labor force in April. The stock was trading slightly under
$30 per share at the closing bell, down $1.89 for the day, establishing a 52
week low for a stock that was trading around $57.00 in January.