Monday, May 9, 2011

Homex Development Corp. (NYSE: HXM) Q3 2011 Price Target

Recent price: 25.52$
P/E Ratio: 10.75
3 Months Target Price: 29$

Company Description
According to Reuters, Homex Development Corp. is a home development company engaged in the development, construction and sale of affordable entry-level, middle-income and tourism housing in Mexico. During the year ended December 31, 2009, the Company sold 57,979 homes. As of December 31, 2009, it had 140 developments under construction in 34 cities located in 21 Mexican states. It had total land reserves under title of approximately 77.2 million square meters as of December 31, 2009, which include primarily land reserves in Mexico and approximately 750,441 square meters of land reserves for its operations in Brazil. Its land reserves include both titled land and land in the process of being titled. During 2009, 25% of its revenues were derived from the state of Jalisco and 21% from the Mexico City Metropolitan Area.

Confidence Margins
Strong resistance $32.60 (+28%)
Light resistance $28.97 (+14%)
Light support $24.85 (-3%)
Strong support $24.41 (-4%)

Homex Development Corp is the definitive play for a recovery of the Mexican housing sector. As of it's last quarterly filing on May 3rd 2011, the company reported growing sales and profits that came in line with what analysts were expecting. This is encouraging news and should be views as a signal that there is plenty of upside left in Homex Development shares by the end of the 3rd quarter of 2011.

Entry strategy
For the cautious investor:
Buy the stock for 26$ or less.

For the risk-taking trader:
The September 2011 30$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 95$ per contract.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 29$, or keep it until 32$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches around 29$. This should provide a satisfactory return if the underlying reaches the target price as the contracts will get in the money.

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