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A growing top line: Standard Pacific Homes' 2Q14 earnings

A growing top line: Standard Pacific Homes' 2Q14 earnings (Part 1 of 5)

Standard Pacific Homes’ background affects its 2Q14 earnings

Standard Pacific is a Southern California–based homebuilder focused on move-up buyers

Founded in 1965, Standard Pacific (SPF) is a Southern California–based builder with operations in California, Florida, the Carolinas, Texas, Arizona, and Colorado. Its homes primarily target move-up buyers. But the company also operates in the entry-level and luxury segments.

SPF BasicsEnlarge Graph

 

Standard Pacific’s operations are divided into 15 operating divisions addressing 25 different markets. Approximately 80% of its homes are single-family detached, with the balance being single-family attached—primarily townhomes and condos with eight or fewer units.

Standard Pacific homes are known for using high-quality materials and for striking architecture. The company customizes homes to the tastes of particular localities.

 

Finance operations

Standard Pacific also originates mortgages. Last year, 81% of its customers financed through the company. Due to the often-extended timelines to close on new construction and the difficulty in hedging much over six months, many mortgage originators are reluctant to let a customer lock a loan for the required period. Homebuilders are a natural supply of these loans. Incorporating financing into the closing process makes it run much smoother.

Standard Pacific Mortgage sells all its production into the secondary market, servicing released, and doesn’t hold mortgages as an investment.

Land acquisition

Standard Pacific generally acquires undeveloped land zoned for residential use. It typically buys and holds land for cash, although it uses options as well. For large projects, it will undertake joint ventures with third parties.

Comparables

The best comps for Standard Pacific are Lennar (LEN) and KB Home (KBH). Both have a West Coast focus and concentrate on the move-up homebuyer. While they do service first-time homebuyers, they’re a smaller portion than builders like D.R. Horton (DHI) or PulteGroup (PHM). Finally, while they do maintain a luxury presence, Toll Brothers (TOL) isn’t really a good comp.

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