Tax Carry Back Extension Carries the House
Here’s how Wachovia Securities analyst Carl Reichardt, Jr. toplines the potential impact of a net operating loss tax carry back extension from the currently allowed two years to five.
We believe for some builders an increased carryback period could result in meaningful improvements in liquidity, especially HOV, and to a lesser extent LEN. However, if the carryback extends it may keep weaker builders alive, providing them with additional liquidity, thereby extending the period of intense hyper-competition among homebuilding firms that we expect will keep growth rates, margins and returns compressed secularly relative to past periods for the industry. Near-term liquidity is not an issue for the majority of public homebuilders in our view, given that 2008 was a year of substantial asset liquidation and/or build-through by most. The primary problem for effectively every builder is a negatively-balanced demand/supply relationship for their product, and extending the carryback does nothing to alleviate this.
Looks like there’s a bit more cash for the accountants to go after based on taxes paid on profits back to as far as mid-2003. Is it a lifeline or a distraction?
Ultimately, foreclosures are and will be the chronic pain-point for new home builders. Whether or not a claim is made on a rebate now or later, those who survive will be the ones who can crack the code of selling against a foreclosure. It’s either the value proposition or the price, or both.
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