Taylor Morrison (TMHC) Rises 50.3% YTD: What's Driving the Stock?
Taylor Morrison Home Corporation TMHC is benefiting from a balanced mix of to-be-built and spec homes, solid land portfolio, capital allocations initiatives and its focus on operational efficiencies.
Being one of the prominent players in the U.S. homebuilding industry, the company is immensely benefiting from the ongoing housing market conditions, along with the aforementioned factors. The lack of existing homes and high mortgage rates have shifted homebuyers’ demand for new homes. This phenomenon has encouraged homebuilders to increase construction activities to satiate the growing demand.
Shares of TMHC have gained 50.3% in the year-to-date period, outperforming the Zacks Building Products - Home Builders industry’s 39.2% growth.
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The company delivered a trailing four-quarter earnings surprise of 17.3%, on average. Earnings estimates for 2023 have moved north from $6.81 per share to $7.05 per share, over the past 60 days. This depicts analysts' optimism about the company’s growth prospects. Solidifying this prospect, the company has a VGM Score of B, backed by a Value Score of A.
Here’s What Makes the Stock Appealing
Balanced To-Be-Built & Spec Home Mix: Taylor Morrison’s growth momentum is notably favored by a favorable mix of to-be-built and spec homes. During the second-quarter 2023 earnings call, the company stated that it will follow either a 60/40 mix or 40/60 mix to maintain its growth momentum. In the quarter, the company stated its closing mix comprised 60% spec homes and 40% to-be-built homes, which is consistent with the first quarter of 2023.
The company’s diversified product portfolio aligns with the balanced mix, thus contributing to its growth. The resort lifestyle buyers and move up buyers tend to mainly focus on to-be-built homes while the entry level buyers focus on spec homes. The net sales orders growth from resort lifestyle and entry level buyers has benefited the quarter’s upward trend. Monthly absorption pace per community has increased to 3.1 in the quarter compared with 2.6 in the prior-year period.
Closings in the second quarter increased 3% to 3,125 homes at an average price of $639,000, which generated home closings revenues of $2 billion. Also, net sales orders increased 18% year over year to 3,023.
Accretive Land Investments: The company’s focus on land buyouts and development investments will enable it to hold strong portfolio in the long term, given the improving market conditions. Sequentially, it accelerated the investments to $397 million during second-quarter 2023, of which 54% was development-related compared with 52% in the prior year. As a share of the total lot supply (72,000 lots), the company controlled 43% of homebuilding lots, up from 41% reported in the prior year.
The company’s land investment strategy focuses on achieving capital efficiency, accretive growth in well positioned markets to benefit from long-term demand drivers along with meeting the needs and preferences of its well-balanced consumer groups.
Capital Allocation Strategies: The company pivots around efficient capital allocation strategies to fulfil its goal of delivering shareholder returns over the course of a housing cycle. Also, this enables the company to facilitate and maintain business diversification through evaluating various growth opportunities. Implementing such strategies will deliver long-term growth opportunities to the company, thus positioning it strong in this uncertain market. Notably, total liquidity reached an all-time high of $2.3 billion at the end of second-quarter 2023. Furthermore, homebuilding debt-to-capitalization declined to 29.7% on a gross basis and 15.4% net of $1.2 billion of unrestricted cash.
Operational Enhancements: Taylor Morrison’s consistent focus on operational enhancements has resulted in increased service delivery efficiencies along with a wide range of its portfolio and digital offerings. These factors have led to increased market demand and a competitive edge over its peers. The company’s geographical spread of its operating segments ensures the optimization of purchases, construction (improved cycle times) and sale procedures, innovation in the design and quality of its products and improvement in the customer experience.
Zacks Rank
Taylor Morrison currently sports a Zacks Rank #1 (Strong Buy).
Other Key Picks
Some other top-ranked stocks from the Construction sector are EMCOR Group, Inc. EME, TopBuild Corp. BLD and Fluor Corporation FLR.
EMCOR currently sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
EME delivered a trailing four-quarter earnings surprise of 17.2%, on average. Shares of the company have risen 82.1% in the past year. The Zacks Consensus Estimate for EME’s 2023 sales and earnings per share (EPS) indicates growth of 11.5% and 36.2%, respectively, from the previous year’s reported levels.
TopBuild currently sports a Zacks Rank of 1. BLD delivered a trailing four-quarter earnings surprise of 14.1%, on average. Shares of the company have risen 57.1% in the past year.
The Zacks Consensus Estimate for BLD’s 2023 sales and EPS indicates growth of 3.3% and 6.1%, respectively, from the previous year’s reported levels.
Fluor currently sports a Zacks Rank of 1. FLR delivered a trailing four-quarter negative earnings surprise of 5.3%, on average. Shares of the company have gained 29.8% in the past year.
The Zacks Consensus Estimate for FLR’s 2023 sales and EPS indicates growth of 11.3% and 141.5%, respectively, from the previous year’s reported levels.
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