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Bull of the Day: MDC Holdings (MDC)

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M.D.C. Holdings, Inc. (MDC) is riding the hot real estate market to soaring earnings in 2021. This Zacks Rank #1 (Strong Buy) is expected to grow earnings another 35% this year.

MDC is one of America's largest home builders. Founded in 1972, it operates under the name Richmond American Homes.

MDC builds across the country including the hot metropolitan areas in Colorado, Nevada, Arizona, Florida, Washington DC, Oregon and, recently, it entered into the red hot Boise, Idaho market.

The company also provides mortgage financing, insurance and title services, through HomeAmerican Mortgage Corporation, American Home Insurance Agency and American Home Title and Escrow Company.

A Red-Hot 2020

Despite the pandemic, which hit in the spring of 2020 and temporarily slowed housing sales, MDC finished the year on a high note.

On Feb 2, it reported its fourth quarter and full year 2020 results and continued to see the strong demand from 2020 continue into 2021.

MDC, and the other home builders, are riding several tailwinds in 2021 including:

1. Record low existing home inventory
2. Low mortgage rates
3. Continued pent-up demand from Millennials now reaching the home buying age
4. A shift from apartment living to single family homes, boosted by the pandemic, where consumers want their own outdoor space

2020 revenues jumped 17% to $3.77 billion from $3.21 billion in 2019.

Unit deliveries rose 17% to 8,158.

Earnings jumped to $5.17 per share as gross margins expanded to 20.8% from 18.8%.

Will 2021 Be a Record Year?

MDC's backlog dollar value as of Dec 31, 2020, soared by 87% to $3.26 billion.

That backlog should lead to higher closings in 2021.

In February, MDC forecast 2021 home deliveries between 10,000 to 11,000, a 3-year high.

The analysts are bullish too.

They've been raising 2021 estimates.

The 2021 Zacks Consensus has jumped to $6.96 from $6.46 in the last 2 months. That's earnings growth of 34.6% over 2020.

Revenue is also expected to be up double digits for the year at $5.2 billion, up 33.4%.

Shares At 5-Year Highs But Still Cheap

The home builder stocks have rallied big on the strong housing demand and low mortgage rates.

MDC shares are up 148% over the last year and continue to hit new 5-year highs in 2021.

But they're still cheap, as that "E" in the P/E has been on the rise.

Shares are trading with a forward P/E of just 8.8.

They also have a PEG ratio of only 0.8.

A PEG under 1.0 usually indicates a company has both growth and value. A powerful combination.

MDC is also shareholder friendly. In Jan 2021, it announced a quarterly dividend that was 21% higher than a year ago.

The dividend is currently yielding 2.3%, one of the highest yields in the home building industry.

In Mar 2021, the company also paid out an 8% special dividend.

It will report first quarter 2021 results on Apr 29.

MDC Holdings joins KB Home (KBH) as the two Zacks Rank #1 (Strong Buy) home builders. KB Home is also cheap, with a forward P/E of just 9.

For investors looking for a way to play the hot housing market, MDC is one to keep on the short list.

[In full disclosure, the author of this article owns shares of MDC in her personal portfolio.]

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M.D.C. Holdings, Inc. (MDC) : Free Stock Analysis Report

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