M.D.C. Holdings, Inc. MDC has been riding high on the back of its focus on more affordable product offerings and solid backlog. Shares of the company, which is one of the largest homebuilders in the United States, have gained 48.6% year to date compared with the industry’s 34.8% rally. Also, it has outperformed the S&P 500’s 15.3% rise in the said period.
Strategies relating to entry-level and first-move-up communities are boosting the stock’s performance. These factors are anticipated to support the company in the upcoming quarters as well. The price performance is backed by its impressive earnings surprise history. Notably, the company’s earnings surpassed analysts’ expectations in four of the trailing six quarters.
Earnings estimates for 2019 and 2020 have moved up 11.1% and 20%, respectively, over the past 60 days. This reflects optimism in the stock’s prospects. Let us delve deeper into other factors that make this Zacks Rank #1 (Strong Buy) stock a profitable pick at the moment. You can see the complete list of today’s Zacks #1 Rank stocks here.
What’s Working in Favor of the Stock?
Focus on First-Time/Entry-Level Buyers: Although the U.S. housing market has been grappling with softness in demand in response to affordability challenges and general market uncertainty, builders are optimistic about the industry’s overall outlook. They believe that healthy economy and strong job market will aid the demand side of the equation. In this regard, M.D.C. Holdings is one of the homebuilders that has been navigating the headwinds smoothly.
M.D.C. Holdings focuses on more affordable product offerings that are likely to drive volumes and profits, considering buyers’ affordability concerns. The company ended second-quarter 2019 with 14% more active communities than it had a year ago. A majority of these communities are targeted for the more affordable segment, which continues to be the deepest part of the market. In the said quarter, 52% of its closings were attributed to more affordable product offerings compared with 40% a year ago.
Thus, the company’s commitment toward customer satisfaction, quality and value raises analysts’ optimism on its growth potential.
Impressive Backlog Position: M.D.C. Holdings continues to see healthy demand for new home offerings. During the second quarter, its net new orders recorded a 32% year-over-year increase on an absorption pace of 4.1 homes per community/month.
The company ended the quarter with an estimated sales value for its homes in backlog of $1.93 billion. Although the backlog was down by a meager 1% year over year due to lower average selling price of homes in backlog, it was mostly offset by an increase in the number of homes in backlog to its highest level since 2006.
Healthy Dividend Payout: The company has been consistently paying out a healthy dividend to its shareholders. It has a strong balance sheet with industry-leading dividend. During the first six months of 2019, the company used $52.1 million of cash for financing activities, primarily related to dividend payments totaling $35.6 million (versus $33.8 million a year ago). The dividend yield, based on the latest payout and Aug 30 closing market price, is approximately 3.1%.
Superior ROE: M.D.C. Holdings’ return on equity (ROE) is indicative of growth potential. The company’s ROE of 13.2% compares favorably with the industry average of 12%, implying that it is efficient in using its shareholders’ funds.
Other Stocks to Consider
Other top-ranked stocks in the same space include M/I Homes, Inc. MHO, Meritage Homes Corporation MTH and Taylor Morrison Home Corporation TMHC, each sporting a Zacks Rank #1.
M/I Homes’ earnings for the current year are expected to increase 15.1%.
Meritage Homes’ shares have climbed 77.9% so far this year.
Taylor Morrison Home surpassed earnings estimates in all the trailing four quarters, with the average being 41.8%.
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M.D.C. Holdings, Inc. (MDC) : Free Stock Analysis Report
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