Doral Financial Corp.’s stock has been on a rollercoaster ride on Wall Street this week, declining by 13.9 percent Wednesday, but climbing back 6.59 percent to $1.78 a share at the end of business Thursday.
The significant swings drew the attention of at least a few analysts, including B. Riley’s Joe Gladue, who attributed the sudden price drop to “rumors about whether or not the Puerto Rico government plans to extend its current housing incentive program beyond its scheduled June 30, 2011 expiration date.”
Under the Gov. Luis Fortuño administration’s 2011 Housing Stimulus program, launched Sept. 1, 2010, new homebuyers are exempted from paying certain costs associated with the mortgage application and closing process, property taxes and special surtax fees for five years, and capital gains taxes when sold. Three other parallel programs provide financing of up to 105 percent of the purchase price of a home.
Some 15,392 new and existing homes worth more than $2 billion had been sold through April 30.
“This program has been a success and has helped drive improved home sale volumes in Puerto Rico. Still, even with this program, home sales have been relatively slow,” Gladue said. “We believe the expiration of the program would result in lower sales in the near term. However, job relocations, household formation and other ongoing life events will continue to drive some basic level of home sales.”
The B. Riley analyst said in recent conversations, local banking executives have offered mixed opinions on whether the government will extend the incentive program beyond its expiration date at the end of the month.
“Some believe that the program will ultimately be renewed, even if there is some hiatus between the end of the current program and any new incentive program. Others have heard that the government will not initiate any extension or renewal of the housing incentives,” Gladue said.
“Regardless of whether the incentives are renewed, it seems that some investors have heard the rumors that the incentives will end June 30 and the rumor has affected Doral stock. How much impact it has had on the stock decline is uncertain,” he said.
Though Doral’s stock fell 13.9 percent Wednesday, it had risen 103.8 percent between its low result of $1.04 on April 19 and its $2.12, May 27 high.
In his analysis, Gladue reiterated B. Riley’s “buy” rating for Doral’s stock, saying the sharp price decline is presenting buying opportunities.
“We still believe this stock is significantly undervalued and we look at the recent pullback as a good buying opportunity,” Gladue said.