As the market already knows, the 1Q12 earnings season for the Brazilian homebuilders kicks off today with Even. Itau’s real estate team sent a note to clients presenting its estimates for what they expect to be a “less-than-exciting” quarter, and it said it’s reducing their fair values by 4% for the homebuilders under their coverage.

“After a problematic 4Q11 earnings season marked by heavy adjustments due to cost overruns (PDG, Gafisa and Tecnisa) and disappointments in margins or cash burn (MRV, Rossi, Brookfield), we do not believe that sentiment towards the sector will turn the corner after 1Q12 earnings are published. Although we are not expecting further big adjustments due to cost overruns and even anticipate a modest QoQ improvement in margins, we think that the 1Q12 earnings season will be marked by continued pressure on margins for the companies that made adjustments in 4Q11 (PDG, Gafisa and Tecnisa), a weak top line for Cyrela, and still-low ROEs for Rossi and Brookfield. On the positive side, we expect EZTEC, Even and Direcional to keep up the positive earnings trend exhibited in the last few quarters, and we expect MRV to maintain ROEs at relatively high levels. In aggregate, we expect net revenues to decrease by 8% QoQ, adjusted gross margins (excluding financial expenses in COGS) to expand by 1.1% QoQ, EBITDA margins to expand by 1.50% QoQ and EPS to fall by 17% QoQ, excluding PDG, Gafisa and Tecnisa.”

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