Here's Why Investors Must Add MDC Stock to Their Portfolio
The U.S. housing market has been observing a shortage of existing homes, which has sparked demand trends for new homes in the market. This phenomenon is notably benefiting homebuilders including M.D.C. Holdings, Inc. MDC. Along with the lack of existing homes, the company’s focus on its Build-to-Order approach and entry-level homes is an added positive.
Shares of this new home construction company have gained 23.6% year to date compared with the Zacks Building Products - Home Builders industry’s 29.7% rise. Although the company’s shares have underperformed its industry, the current housing market conditions are set to boost its growth trend in the upcoming period.
This Zacks Rank #2 (Buy) company delivered a trailing four-quarter earnings surprise of 46%, on average. The company has a VGM Score of A, backed by a Value Score of A, a Growth Score of B and a Momentum Score of A.
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What Makes the Stock Appealing?
Improving Demand for New Homes: The demand for new homes has witnessed an increasing trend for quite some time now, which is attributable to reduced existing home supply. Backed by this tailwind, MDC witnessed 54.3% year-over-year growth in its net new orders to 2,167 units in the second quarter of 2023. Consequently, the value of net orders increased 36.8% from the year-ago quarter’s levels to $1.21 billion.
Furthermore, cancellations, as a percentage of gross sales, decreased to 20.2% from 37.2% from the year-ago period. The monthly absorption rate also increased by 34% from the prior-year period.
Build-to-Order Approach: MDC’s Build-to-Order strategy, also termed “dirt sales”, provides buyers with a wide range of choices in major aspects of their future home and personalized customer experience through in-house community teams. The company limits the number of homes started without a contract, also known as “spec homes”, and follows a strategy of initiating construction only after the execution of a purchase agreement.
This reduces inventory risk, enhances efficiencies in construction and provides greater visibility as well as predictability on future deliveries. The company’s build-to-order homes model provides it with a competitive edge over its peers.
Affordable Offerings: The company tends to focus on the growing demand for entry-level homes accompanied by addressing the need for lower-priced homes, given the affordability concerns prevailing in the U.S. housing market.
In view of these strategic efforts, the growing share of first-time buyers is encouraging, especially in the post-pandemic market. The company is avidly observing the price appreciation of new homes across the country and is continuously trying to address the issue by providing housing options to new home buyers at a reasonable price.
Other Key Picks
Some other top-ranked stocks from the Construction sector are Installed Building Products, Inc. IBP, Construction Partners, Inc. ROAD and Toll Brothers, Inc. TOL.
Installed Building currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
IBP delivered a trailing four-quarter earnings surprise of 5.5%, on average. Shares of the company have risen 44.4% in the past year. The Zacks Consensus Estimate for IBP’s 2023 sales and earnings per share (EPS) indicates growth of 4.7% and 8.6%, respectively, from the previous year’s reported levels.
Construction Partners currently sports a Zacks Rank of 1. ROAD delivered a trailing four-quarter earnings surprise of 10.6%, on average. Shares of the company have gained 39% in the past year.
The Zacks Consensus Estimate for ROAD’s fiscal 2024 sales and EPS indicates growth of 19.3% and 112.2%, respectively, from the previous year’s reported levels.
Toll Brothers currently sports a Zacks Rank of 1. TOL delivered a trailing four-quarter earnings surprise of 31.4%, on average. Shares of the company have surged 72.4% in the past year.
The Zacks Consensus Estimate for TOL’s fiscal 2024 sales and EPS indicates growth of 4% and 1.5%, respectively, from the previous year’s reported levels.
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Toll Brothers Inc. (TOL) : Free Stock Analysis Report
M.D.C. Holdings, Inc. (MDC) : Free Stock Analysis Report
Installed Building Products, Inc. (IBP) : Free Stock Analysis Report
Construction Partners, Inc. (ROAD) : Free Stock Analysis Report
