The Zacks Analyst Blog Highlights:D.R. Horton, PulteGroup, MDC Holdings, Ryland Group and Apache

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Jul 24, 2013, 09:30 ET

CHICAGO, July 24, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include D.R. Horton Inc. (NYSE:DHI-Free Report), PulteGroup, Inc. (NYSE:PHM-Free Report), MDC Holdings Inc. (NYSE:MDC-Free Report), Ryland Group Inc (NYSE:RYL-Free Report) and Apache Corp. (NYSE:APA-Free Report).

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Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Tuesday's Analyst Blog:

Will D.R. Horton Beat Estimates This Quarter?

Homebuilder D.R. Horton Inc. (NYSE:DHI-Free Report) is scheduled to report third quarter fiscal 2013 (ending Jun 30) earnings before the opening bell on Jul 25, 2013.

Last quarter, D.R. Horton posted a positive surprise of 60%. We expect the company to beat expectations in the third quarter too.

Why a Likely Positive Surprise?

Our proven model shows that D.R. Horton is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: The expected surprise prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +8.57%. This is meaningful and a leading indicator of a likely positive earnings surprise for the shares.

Zacks Rank #1 (Strong Buy): D.R. Horton carries a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank #1, #2 and #3 have a significantly higher chance of beating earnings estimates. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.

The combination of D.R. Horton's Zacks Rank #1 (Strong Buy) and a positive ESP of +8.57% makes us confident of an earnings beat on Jul 25.

What is Driving the Better-than-Expected Earnings?

We believe that the steadily improving housing conditions will boost both volume and prices for D.R. Horton homes in the third quarter despite recent concerns about rising interest rates.

We believe that though interest rates are increasing of late, they are still below historical levels and housing is still increasingly affordable. Homebuilders have largely benefited from historically-low interest rates, eventually leading to the sharp increase in home buying activity since mid-2012. Moreover, Federal Reserve Chairman, Ben Bernanke's comments last week to keep interest rates low for some time has also provided some relief to the housing industry. Low interest rates increase demand for new homes as mortgage loans become cheaper; thus improving the purchasing power of the buyer.

In addition to the brisk housing recovery, increased investments in land in high-demand markets, efficient inventory management and improved selling, general and administrative (SG&A) expense ratio are expected to boost profits for D.R. Horton in the upcoming quarters.

D.R. Horton has been witnessing solid year-over-year growth in new home orders, average selling prices and home closings for the past few quarters. D.R. Horton has in fact delivered 6 consecutive positive earnings surprises, with an average of 31.25% for the past four quarters.

Other Stocks to Consider

Here are some other homebuilding companies that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

PulteGroup, Inc. (NYSE:PHM-Free Report), Earnings ESP of +3.45% and Zacks Rank #1.

MDC Holdings Inc. (NYSE:MDC-Free Report), Earnings ESP of +3.64% and Zacks Rank #1.

Ryland Group Inc (NYSE:RYL-Free Report), Earnings ESP of +15.63% and Zacks Rank #1.

Apache to Dispose $3.7B GoM Assets

U.S. energy firm, Apache Corp. (NYSE:APA-Free Report), has decided to divest its Gulf of Mexico (GoM) Shelf assets for a cash consideration of roughly $3.75 billion to Fieldwood Energy LLC, a subsidiary of a private equity firm Riverstone Holdings. The properties span over 1.9 million acres, with proved reserves of 133.0 million barrels of liquids and 636.0 billion cubic feet of natural gas.

Additionally, Fieldwood will obtain all the future obligations related to the asset retirement, which is estimated to be roughly $1.5 billion. However, Apache will retain 50% stakes in all the unexplored blocks. The transaction is expected to close by Sep 30, 2013, subject to customary and regulatory approvals. In the transitional period, Apache will continue operating the assets.

Apache believes that this proposed sale will help it to rebalance its portfolio and also generate shareholder's value. Moreover, the transaction will enable Apache to reach closer to its goal of selling properties of roughly $4.0 billion by the end of 2013. The proceeds from this divestment will be used to lower Apache's debt burden and to repurchase shares.

Houston, Texas-based Apache is one of the world's leading independent energy companies engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids. We like Apache's large geographically-diversified reserve base, as well as its balanced exposure to natural gas and crude oil, and multi-year trends in reserve replacement and production growth.

However, the company's long-term production and reserve growth primarily depends on its acquire-and-exploit model. Apache may find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.

Apache currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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