September 13, 2011
Volume XXXVII, Issue VII & VIII
Published by: BOYAR'S INTRINSIC VALUE RESEARCH LLC 35 East 21 St. Suite 8E New York, NY 10010 Tel: 212-995-8300 Fax: 212-995-5636
www.boyarvalue.com
Asset Analysis Focus is not an investment advisory bulletin, recommending the purchase or sale of any security. Rather it should be used as a
guide in aiding the investment community to better understand the intrinsic worth of a corporation. The service is not intended to replace
fundamental research, but should be used in conjunction with it. Additional information is available on request.
The statistical and other information contained in this document has been obtained from official reports, current manuals and other sources
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herein.
Boyar's Intrinsic Value Research LLC Copyright 2011.
Table Of Contents
Page
Introduction ..................................................................................... 1
Equifax Inc. ................................................................................... 25
Mohawk Industries, Inc. ................................................................ 46
Watsco, Inc..… ............................................................................. 62
Whirlpool Corporation. .................................................................. 80
September 13, 2011
Volume XXXVII, Issue VII & VIII
- 1 -
Introduction
Background
Although approaching the subject from a slightly different angle, we have decided to re-visit a familiar topic
for this year’s summer issue: the domestic housing market. In our January 2007 edition of Asset Analysis Focus,
we profiled the homebuilding industry as a short. In that issue, we outlined our thesis as to why we thought the
shares of many of the publicly traded homebuilders were vulnerable despite sporting deceptively low trading
multiples. We supported our case by highlighting a number of worrisome signs that the run-up in home prices was
poised to crack, reflecting reduced affordability, increasing prevalence of subprime and exotic mortgages and a
growing supply of housing inventory. The following table summarizes the percentage decline in the homebuilder
stocks that we felt were overvalued in 2007, including the iShares Dow Jones U.S. Home Construction Fund
(Ticker: ITB), which at the time was a “pure play” on the publicly traded homebuilders:
Homebuilder Price Decline from January 2007
Company Name
Ticker
Price
1/31/07 Issue
Current Price
9/13/11
% Change
1/31/07-9/13/11
Price
12/18/08 Issue
% Change
1/31/07-12/18/08
Dow Jones U.S. Home Construction Index Fund ITB
$42.66
$9.34
-78.1%
$11.50
-73.0%
KB Home
KB
$54.22
$5.67
-89.5%
$14.83
-72.6%
Lennar Corp.
LEN
$54.38
$13.33
-75.5%
$10.12
-81.4%
M.D.C. Holdings
MDC
$58.27
$17.20
-70.5%
$32.55
-44.1%
NVR Inc.
NVR
$692.52
$616.50
-11.0%
$484.21
-30.1%
WCI Communities *
WCI
$21.65
$0.00
-100.0%
$0.00
-100.0%
Average Return
-70.8% -66.9%
* WCI filed for bankruptcy on 8/4/08
In December 2008, we formally reversed our “short” call on housing within our 2009 Forgotten Forty
publication when we featured the iShares Dow Jones U.S. Home Construction Fund as a long. At that time, ITB
was trading at $11.50 per share, down 73% from when we featured the fund as a short nearly two years earlier.
Just as we had been early with our prior housing warnings, our view in December 2008 that homebuilders were
attractively priced has proved to be premature. Most homebuilding related stocks have yet to experience a
meaningful recovery as new home construction continues to hover at historically depressed levels. We believe the
absence of a sustained housing recovery to date is attributable to a number of factors including the unprecedented
supply overhang created during the recent housing bubble, the stubbornly high unemployment rate in the wake of
the housing/financial/credit crisis, tighter credit conditions, consumer balance sheet deleveraging, and depressed
consumer sentiment levels. To add insult to injury, and in what can be described as a classic case of “closing the
barn door after the horse has run out,” overly restrictive government regulations have been introduced dealing a
further blow to the housing industry’s future prospects. We recognize that these factors may mean a robust real
estate upturn is still years away. In turn, this could threaten cash flow problems for many homebuilders that still
have overleveraged balance sheets and uncertain access to reasonably-priced funding. Additionally, it has become
increasingly evident that homebuilders are still plagued by the remnants of bubble-era excesses, including a glut of
difficult-to-value land & development inventory, opaque off-balance sheet arrangements, and in some cases, even
substantial representation and warranty liabilities stemming from mortgage originations.
However, as we reassess the housing industry some 5 years after the peak in real estate prices, it is
impossible to ignore the contrast between sentiment (both investor and consumer), which is again approaching
2008-2009 lows, and the much-improved underlying housing fundamentals. Interest rates are at record lows,
affordability measures are at multi-decade highs, homeownership rates are down markedly, and new construction
levels are far below normalized household formation rates. In extending our search beyond homebuilders to other
businesses closely linked to the housing market (appliances, textiles, credit information, etc.) we have come across
many companies that weathered the bubble’s collapse only to come out in stronger financial and competitive
positions, that currently trade at attractive valuations, and have tremendous upside from a healthy housing
environment. In our view, the market is affording an opportunity to make long-term investments in companies that