Earnings estimates have been soaring for
) as the homebuilder continues to benefit from a rebounding housing
market. The significant increase in demand for new homes not only
means higher revenues for MDC but also significantly higher profit
margins as the company is able to raise prices and reduce
incentives while leveraging its fixed expenses.
It is a Zacks Rank #1 (Strong Buy) stock.
MDC Holdings Inc. is a homebuilder that has been building under the
name "Richmond American Homes" for 40 years. It primarily operates
in the Western and Mountain regions of the United States with some
exposure in the Eastern U.S.
The recent rise in interest rates has hurt shares of homebuilders
like MDC, but the selloff could be a great buying opportunity as
the fundamentals of MDC look very attractive.
Big First Quarter Beat
MDC Holdings reported strong first quarter results on May 2.
Earnings per share came in at 45 cents, crushing the Zacks
Consensus Estimate of 26 cents. It was a huge increase over the 4
cents it reported in the same quarter last year.
Total revenue surged 77% to $344.3 million, well ahead of the
consensus of $294.0 million. Home sale revenues rose a whopping 80%
to $331.7 million, which was driven by a 64% jump in home
delivered. The average selling price for homes closed rose 9% to
The gross profit margin expanded 330 basis points to 17.4% of
revenue as the company continued increasing prices and decreasing
incentives as demand picked up considerably. Meanwhile, selling,
general and administrative expenses fell from 18.5% to 14.5% of
revenue as the company leveraged its fixed expenses.
Following solid Q1 results, analysts revised their estimates
significantly higher for MDC, sending the stock to a Zacks Rank #1
(Strong Buy). You can see the dramatic rise in earnings estimates
in the company's 'Price & Consensus' chart:
The Zacks Consensus Estimate for 2013 is currently $2.49,
representing 103% EPS growth over 2012. The 2014 consensus is now
$2.65, corresponding with 6% annual growth.
In fact, estimates have been rising in general for homebuilders.
The 'Building - Residential / Commercial' industry ranks 8th out of
the 265 industries that Zacks ranks. That puts it in the top 3% of
Despite strong earnings momentum, shares of MDC have sold off
recently as interest rates have risen. But shares look attractive
at these levels.
The stock currently trades at just 12.5x 2013 earnings, which is
below the industry median of 14.5x. Its price to book ratio of 1.6
is also well below the industry median of 2.0.
The Bottom Line
With very strong industry trends, soaring earnings estimates and
reasonable valuation, this homebuilder offers a lot to like.
Todd Bunton is the Growth & Income Stock Strategist for
and Editor of the
Income Plus Investor service
MDC HLDGS (MDC): Free Stock Analysis Report
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