Inside Wall Street
DEL WEBB COULD SWIM AGAINST THE TIDE...
The '90s are shaping up as the decade of the Great Real Estate Depression -- or at least, such is the conventional wisdom. With sentiment so overwhelmingly lousy, only the most intrepid contrarians are buying into real estate outfits nowadays. One of these nervy souls is Gordon Wilson, who runs stock portfolios at Kemper Financial Services in Chicago. Wilson has been betting heavily on one of the most venerable companies in real estate, Del Webb.
Webb's earliest claim to fame was casinos -- its founder was a Nevada contractor who built the Flamingo hotel in Las Vegas for Bugsy Siegel in the '40s, and the company operated casinos through the late '80s. But casinos were a meager source of profits -- as were other Webb ventures through the years, such as hotels and national-park concessions. Lately, Webb has been sticking with its strongest suit, retirement communities. It built the granddaddy of them all, Sun City, near Phoenix, in 1960, and Webb is building similar communities near Sun City and in Palm Springs, Tucson, and Las Vegas. Other "active adult" communities are being planned for California and Texas, and the company expanded into conventional homebuilding in early 1991. "They build good, low-cost housing," says Wilson, "and demographics are definitely in their favor."
HOPEFUL SIGN. True, retirement-home sales are hardly charging ahead with the same gusto that Sun City enjoyed during the '60s and '70s. But sales have been surprisingly strong recently in Palm Springs, generously exceeding expectations. In the fiscal year ended June 30, sales jumped to $261 million from $228 million the year before, and earnings from continuing operations climbed handsomely, from $6.8 million to $13.9 million. The number of homes under contract but not yet closed rose 20% during the year, and, significantly, average revenues per sale were stable -- a hopeful sign that home-sale prices have bottomed out, at least for Webb. Nevertheless, Webb's Big Board-traded stock is down almost 25% since March (chart).
Wilson is banking on Webb as a cheap growth stock and has been buying the shares for his domestic equity portfolios, which include the mutual fund Kemper Total Return. He expects Webb's earnings to hit $2.25 a share in the 1993 calendar year, vs. $1.55 in 1992. So at its recent price of 18, Webb is selling for only about eight times estimated 1993 earnings. That's half the extimated 1993 price-to-earnings multiple of 16 for the Standard & Poor's 500-stock index. Wilson sees Webb shares poised to take off into the high 20s or low 30s over the next six months.GARY WEISS