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MDC Holdings Inc. Message Board

  • elrayem elrayem Apr 26, 2006 10:13 PM Flag

    is oldschool in the house?

    did you hear CTX tonight became the first homebuilder to write-down their land assets? Took at 14cent hit this quarter writing off land option deposits, land parcels, and acquisition costs.

    Trust me -- that's just the beginning

    That book value number's looking a little hollow tonight, ain't it?

    Lovin' my CTX Jan 60 puts!

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    • True, the builders do move together. So do the banks, the oil stocks, gold stocks, etc. I like to differentiate and thus view MDC as among the cheapest and least risky (from a balance sheet standpoint).

      My favorite HB stock, by the way, is Standard Pacific. More financial leverage than MDC but also a more undervalued land position. SPF is trading slightly below YE2006 book value with community count growth by year end of 35%.

    • If MDC is the ONE that is better than the other HB's, Why is the whole sector moving together. I would suggest that there is a lot more going on that any one "good" homebuilder can overcome. If the HB stock price movement were not so highly correlated to each other, a specific opinion on one of them might be valid. Until the bloodbath subsides, one does not know what the "level" will be for equal long/short-undervalued / overvalued.

    • Agreed, I am more optimistic than the avg. investor in MDC (partly because many investors are short).

      I can't ignore the balance sheet here and the fact that the stock is trading below liquidation value.

      Contrarian?--Yep that's me. I also have a longer term view than most. I can wait 12 months for my 30% return.

    • OSB,

      Since the price of MDC is a direct reflection of the markets expectations of future earnings -- and you believe it is currently under priced -- it is worth noting that you are decidedly more bullish than the average investor in this stock.

      Also of note, the downward trend in the stock reflects an increasing sentiment that the downturn will be longer and deeper than many initially expected in the fall.

      Food for thought.

    • <<<The basic difference between you and the HB bears is that while we all acknowledge the housing market is moderating, we differ in its magnitude. Actually, I hope that you're right and the worst that happens to MDC and other builders is that they foreit a few options.

      Unfortunately, there is also a chance that this thing can get much uglier and last a lot longer than 3 or 4 quarters as you seem to believe. That in fact the housing market is overextended like it has never been before and is due for a long and protracted slowdown that will leave many of the builders struggling for survival and will take years, not a few quarters, before it is finally over.>>>

      Agreed! The difference in opinion is about the duration and severity of the decline from the peak. We also differ about what MDC's valuation is reflecting at current levels. I think it is TOO cheap relative to several measures of value (which I tried to illustrate in my earlier detailed posts).

      Keep up the lively and intelligent discussion. It's better than the cheerleading dribble that populates many of these boards.

    • The basic difference between you and the HB bears is that while we all acknowledge the housing market is moderating, we differ in its magnitude. Actually, I hope that you're right and the worst that happens to MDC and other builders is that they foreit a few options.

      Unfortunately, there is also a chance that this thing can get much uglier and last a lot longer than 3 or 4 quarters as you seem to believe. That in fact the housing market is overextended like it has never been before and is due for a long and protracted slowdown that will leave many of the builders struggling for survival and will take years, not a few quarters, before it is finally over.

    • <<<Hate to be the bearer of bad news....but you actually think MDC has ANY lots, developed and ready to build...at a cost of $3500 each?

      You're dreaming....or drunk.

      If you were starting with a "0" land cost...the infrastructure alone will cost many times more than $3500. It has for years.

      Just as a side note...I live right up the road from a new MDC tract going in right now. I know their lot costs have to be at least 35-40K...assuming they bought the ground some years ago.

      Obviously you know far more than I do....After all, for the past 5 years, all I've done is developed small subdivions, built custom homes and dealt in "ground" in a out of the way place called Florida. I did have the presence of mind to start liquidating property at the beginning of last year... Any idiot could see the day of reckoning coming...>>>

      Man, oh man, do you not have a clue about what an option is?! MDC pays a $3500 premium/deposit per lot on average for the option to buy the lot for say $100K.

      That is not the same as owning the lot. MDC's owned lots are carried on the books at $70K on average.

      MDC can walk away from options. If MDC walked away from ALL of its options the forfeited "premium" would be around $70 million.

      Given MDC's average selling price of $350K and average lot cost of $70K, there is plenty of profit margin built in to the balance sheet.

      I am glad you are knowledgeable about land development, custom building, etc. You don't seem to be as good at understanding equity valuation, financial statement analysis, and the specifics of MDC's business. Read my earlier posts. They may help you understand things a little better.

    • Hate to be the bearer of bad news....but you actually think MDC has ANY lots, developed and ready to build...at a cost of $3500 each?

      You're dreaming....or drunk.

      If you were starting with a "0" land cost...the infrastructure alone will cost many times more than $3500. It has for years.

      Just as a side note...I live right up the road from a new MDC tract going in right now. I know their lot costs have to be at least 35-40K...assuming they bought the ground some years ago.

      Obviously you know far more than I do....After all, for the past 5 years, all I've done is developed small subdivions, built custom homes and dealt in "ground" in a out of the way place called Florida. I did have the presence of mind to start liquidating property at the beginning of last year... Any idiot could see the day of reckoning coming...

    • Wrote down land assets? Take it easy.

      Actually CTX wrote off option deposits. Do you know how much? 12 cents per share. Land owned is worth way more than book value as it was purchased 3-5 years ago.

      MDC also wrote off some options--about 10 cents hit to earnings during the quarter. MDC is very short on land. Check out my prior analysis.

      CTX did have some horrific guidance--the low end of which seems pretty conservative. One interesting thing is community count is flattish (MDC's is up 20%). Execution at CTX is definitely not up to par with some of the other builders.

      • 1 Reply to oldschoolbuilder
      • Writing down assets is exactly the debate we had going about the validity of using HB's balance sheets to support current validation models. You didn't bring up MDC's info then....and I hadn't seen it, do you have a link?

        There's a wire story out tonight claiming CTX was the first major HB to do this.

        You say its just 12cents/share -- all I'm saying is it is possible that big chunks of assets could eventually be affected -- meaninful size bites that may eventually lead to talk of bankruptcy.

        MDC uses options instead of outright purchases compared to other HBs -- conventional wisdom was that this made them of lesser risk.

        Couldn't you argue the contrary -- just as options in the stock market have a higher chance of going to zero if the market moves away from you, the same can be true comparing options vs land purchases -- as assets. At least the HBs that own land outright don't have an asset that will go to zero.

        Blame CTX performance on an individual case of underperformance at your own peril. I believe it is just one of the first to slip. The CFO did recently resign -- and they have had the biggest advertized incentives, so perhaps it should have been obvious that there would be no joy in mudville tonight. PHM barely dodged a bullet tonight too, if you look closely at there numbers -- chock full of special one-times.

        As we said the other night, I guess it just comes down to how gentle/hard you expect the landing to be.

 
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