Good returns have investors smiling.

The Producers: Public Builder Report Card

By Iris Richmond

When it comes to the fundamental gauge of measuring how much money they make their investors, public builders haven?t disappointed. ?Wall Street has taught these companies about the importance of return on capital,? says John Stanley of UBS Warburg. ?They are clearly more focused on revenues than in the past.?

Overall, the builder group provided, on average, a return on capital of 23.6 percent, up from 18.4 percent five years ago. Leading the group five times over is NVR, whose stock repurchases in 2001 totaled $223 million. The top 10 companies, excluding NVR, gave a return of 28.1 percent. Not only that, it was the second consecutive year for the builders to earn a return on equity of more than 20 percent, roughly 50 percent better than the S&P 500. The top 10 builders, again excluding NVR, posted an overall average of 33.9 percent, an 8 percent improvement over the previous year.

With builders continuing to fall from the group, the entrance of WCI into the public arena stirs the public pot. However, it doesn?t portend a new wave of IPOs. ?WCI?s unique business plan addresses a niche market, but there aren?t many other companies big enough to make that leap,? says Stanley. ?Many of them have already been acquired rather than wait to take the IPO route.?

Meanwhile, the big get bigger. Centex was the only company with a billion dollar equity cap five years ago. Last year, that number grew to eight, with the top tier in the $3 to $4 billion range. Analysts credit information technology along with the centralized functions of companies, including in-house mortgage and title operations, for helping builders handle high levels of volume while producing strong returns. The $10 billion cap seems only a public-to-public merger away.

Top 10 in Return on Capital

NVR 198
MDC 37
MTH 34
LEN 29
RYL 29
TOL 25
SPF 25
BZH 24
KBH 23
Source: UBS Warburg

Top 10 by Market Cap

(in millions)

CTX $3,465
LEN $2,997
PHM $2,632
DHI $2,502
KBH $1,694
TOL $1,527
NVR $1,525
MDC $1,005
RYL $968
BZH $631

Source: As of Dec. 31, 2001 from UBS Warburg

Top 10 in Price to Earnings Ratio

SHLR 16.3
NVR 11.7
HOV 11.4
DHI 11.1
BZH 10.0
CTX 9.8
RYL 9.3
CROS 9.3
PHM 8.9
LEN 8.8

Source: As of March 1, 2002 from UBS Warburg

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