The Ryland Group, Inc. (RYL) jumped sharply after announcing solid first quarter results on April 26, 2012, and has been rising consistently since then. In fact, shares of this leading national homebuilder has more than tripled since the third quarter of 2011.
With the housing market showing slow signs of improvement in 2012 and estimates on the rise, this Zacks #2 Rank (Buy) stock has bright prospects ahead.
Solid First Quarter
Ryland's first quarter 2012 loss per share of 6 cents was narrower than the Zacks Consensus Estimate for a loss of 7 cents, as well as the prior-year loss of 44 cents. Better housing revenues and solid cost management led to the narrower loss.
Ryland delivered total revenue of $215.9 million, up 28.7% from the year-ago quarter, driven by better homebuilding revenues. The result, however, slightly missed the Zacks Consensus Estimate of $228 million.
Homebuilding revenues totaled $209.5 million, up 29.8% year over year, driven by new community openings and significant double-digit increases in unit closings and new home orders. Net home orders jumped 46.4%, fueled by increased sales volume. Moreover, home closings increased 25.4%, while the average home price expanded 3.2%. Sales were higher in each of the company's operating regions.
Housing gross margin (including inventory valuation adjustments) was 17.5%, up 230 basis points year over year, driven by lower construction costs, lower concessions and incentives, volume leverage and better product mix. Homebuilding pre-tax income was $1.1 million versus a loss of $17.4 million in the prior-year quarter, driven by higher volumes and lower interest and selling, general & administrative (SG&A) expenses.
Management seems confident that the company can play to its strengths, given the recovery in the housing market and improving demand, supported by its cost-saving efforts and improving community count and absorption levels.
The past 30 days have seen one upward estimate revision for 2012 and 2013 each. As a result, the Zacks Consensus Estimate for this year has advanced nearly 4% to 53 cents per share. Likewise, the Zacks Consensus Estimate for next year has advanced 2.7% to $1.52, which suggests improvement of almost 200% from 2012.
An Overall Attractive Valuation
Ryland currently trades at a forward price-to-earnings (P/E) of 50.1x, reflecting a 20.0% discount to the peer group average of 62.4x. It looks attractive on a price-to-sales basis as well. The P/S multiple for the stock is 1.25, reflecting a discount of 2.3% to the peer group average of 1.28. However, the stock looks expensive on a price-to-book value (P/B) basis. The P/B multiple for the stock is 2.48x, reflecting a 23.3% premium to the peer group average of 2.01x.
The Chart Shows Consistent Increase
The stock has been rising continuously over the last few months with the gradual recovery in the housing market. The stock reached its 52-week high of $26.80 on July 5, 2012. Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $22.59 and $17.68, respectively. In fact, the stock has been consistently trading above its 200-day moving average since mid-December 2011 and above its 50-day moving average since mid-June 2012.
Volume is very strong, averaging roughly 1785K daily. Ryland has outperformed the S&P 500 over the past six months. The year-to-date return for the stock is 69.85%, compared with 8.75% for the S&P 500.
Based in Southern California, Ryland, with a market cap of $1.16 billion, is a leading homebuilder, manufacturing single-family attached and detached houses. The company operates in 13 states across U.S. and also provides mortgage finance services.
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