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Will Lower ASP Affect M.D.C. Holdings' (MDC) Q3 Earnings?

Zacks Equity Research

M.D.C. Holdings, Inc. MDC is scheduled to report third-quarter 2019 results on Oct 30, after the market closes.

In the last reported quarter, the company’s earnings and revenues topped the Zacks Consensus Estimate by 10.3% and 2%, respectively. On a year-over-year basis, its bottom line declined 15%. Total revenues (including Financial Services revenues) were also down 2.5% from the year-ago level. This downside was caused by decrease in the average selling price or ASP of homes delivered.

Markedly, the company’s earnings surpassed estimates in two of the trailing four quarters, resulting in average positive surprise of 2.6%.

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has been stable at 87 cents over the past 30 days. The estimated figure indicates an increase of 1.2% from 86 cents per share reported in the year-ago quarter. Revenues are expected to be $779 million, suggesting a 0.9% decline from the year-ago reported figure of $$785.6 million.

M.D.C. Holdings, Inc. Price and EPS Surprise

M.D.C. Holdings, Inc. Price and EPS Surprise

M.D.C. Holdings, Inc. price-eps-surprise | M.D.C. Holdings, Inc. Quote

Factors to Consider

M.D.C. Holdings’ lower revenues and earnings, mainly due to the ongoing U.S. housing market uncertainties, are expected to get reflected in third-quarter 2019 results. Although declining mortgage rates and lower housing prices are expected to have increased traffic in the quarter, lower conversion of that traffic to sign purchase contracts is likely to have weighed on its revenues.

The company expects backlog conversion ratio (home deliveries divided by beginning backlog) for the third quarter in the 39-41% range. The metric was 40% a year ago. Lower ASPs are expected to have hurt its top line. The company anticipates ASP to decrease between 5% and 10% sequentially in the third quarter. This is largely due to mix, including the continued increase in the percentage of closings coming from more affordable product lines.

In addition to lower revenues, higher SG&A expenses are expected to have weighed on its third-quarter earnings.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for M.D.C. Holdings this time around. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive surprise. This is not the case here, as you will see below.

Earnings ESP: M.D.C. Holdings has an Earnings ESP of 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at 87 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Jacobs Engineering Group Inc. JEC has an Earnings ESP of +0.97% and holds a Zacks Rank #2.

MasTec, Inc. MTZ has an Earnings ESP of +0.92% and a Zacks Rank #1.

Vulcan Materials Company VMC has an Earnings ESP of +8.24% and carries a Zacks Rank #2.

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