Builder Taylor Morrison Rebounds Along With Key Markets

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While many U.S. homebuilders began to rebound a couple of years ago along with the broader housing market, Taylor Morrison Home was a little late to the party.

Taylor Morrison ( TMHC ) builds single-family homes, condos, high-rise and master-planned communities in the U.S. and Canada. A good chunk of its business comes from Arizona, California and Florida -- markets that were among the hardest hit during the housing crisis.

Because some of the markets Taylor Morrison serves took so long to recover -- including Phoenix, Southern California, Tampa and Orlando, Fla. -- the company's own financial performance took a while to rebound, too.

It wasn't until the fourth quarter of 2012 that Taylor Morrison finally began to produce sustained revenue growth. It took even longer for the company to get its earnings growth back on track.

In contrast, leading publicly traded builders such asLennar ( LEN ),D.R. Horton ( DHI ) andNVR ( NVR ) have been producing robust financial gains since the first quarter of 2012.

Financial Pick-Me-Up

The good news for Taylor Morrison is that it is now firing on all cylinders financially. The company has delivered five straight quarters of 43%-or-better sales growth. Earnings have risen at least 17% over the last three quarters.

Meanwhile, Taylor Morrison continues to raise its 2014 expectations amid growing optimism over several key markets.

In a recent report, Zacks Equity Research noted that Taylor Morrison's full-year estimate rose three times over the span of 30 days, "and there has been no downward revision over the same time frame."

Part of the optimism over this year's growth potential centers on Florida, where Taylor Morrison has a variety of new communities coming to market.

One project -- the Overlook at Hamlin in the Orlando area -- recently opened with four product lines on Lake Hancock. Homes will range from 1,600 to more than 5,100 square feet, with planned prices that start around $250,000 and range to more than $1 million.

Taylor Morrison bought property in the area in 2011, when Orlando's housing market was still getting hammered by declining home sales and prices.

"We purchased the initial 380-lot project when few builders in the Orlando area were purchasing small draw positions," Chief Executive Sheryl Palmer said on a Q4 conference call with analysts.

Early last year Taylor Morrison added another 260 lots to the community. The Overlook at Hamlin opened for pre-sales in December and had sold 30 units through January.

Palmer also voiced optimism about Florida's market for active adult communities.

"We have seen a strong presence from this buyer group as the season kicked off late last year," she said. "We built many different types of communities and ... have dozens of others set for this year that we believe will contribute to another successful year."

Meanwhile, Taylor Morrison's business should get an additional boost from Texas, which weathered the housing crisis in relatively good shape and is home to one of the nation's strongest job and housing markets.

Taylor Morrison's operation in the Lone Star State includes communities in the thriving Austin and Houston metro areas.

Following a homebuilding tour of Houston and Dallas earlier this year, analyst Michael Rehaut of JPMorgan noted that "all of the public and private builders we met with conveyed highly favorable market outlooks for the upcoming year, with a leading private developer describing the Houston market as 'full steam ahead.'"

Those outlooks were consistent with JPMorgan's Regional Market Analysis, which "point to both Dallas and Houston as being two of the strongest housing markets in the country from a fundamental standpoint, featuring strong job growth, favorable price-to-income ratios and low inventory levels."

Rehaut also noted that Houston's job growth over the last two years, at 6.8%, clocked in at more than double the national average of 3.2%. Austin's job growth over the same period was also more than double the national average, at 6.6%.

'Unique' Advantage

On the Q4 conference call, CEO Palmer said "all of our Texas markets performed well through the fourth quarter, with the average selling price among some of the highest in our U.S. market. We believe our positioning has created a unique competitive advantage."

Strength in Texas helped Taylor Morrison deliver its best performance in years during the fourth quarter. Earnings came in at 72 cents a share, excluding special items. That was up from 1 cent the prior year, when the company was still privately held, and above Wall Street estimates.

Total revenue climbed 43% to $798.4 billion, beating views. Taylor Morrison also topped estimates on homebuilding revenue, unit closings and homebuilding gross margin. The average closing price rose 8.1% year-over-year, which was above views as well.

"Taylor Morrison's focus on move-up and luxury buyers appears to be working, and we believe the company's pricing power is the key reason for the gross margin beat," Sterne Agee analyst Jay McCanless noted.

For 2014, Taylor Morrison expects its community count to increase 25% to 30% and closings to climb 15% to 20%. Analysts polled by Thomson Reuters look for 2014 EPS of $1.96, up 38% from last year. Full-year profit is seen rising 15% in 2015.

Taylor Morrison's stock price trades near 25. The company's shares, which went public last April, have risen about 29% since the beginning of 2014.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Investing Ideas
More Headlines for: TMHC , LEN , DHI , NVR


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