Ryland Group (
), the ninth-largest publicly traded homebuilder by market value,
has come out of the housing doldrums armed and ready for
It's been buying land from developers, banks and smaller
builders. And it made two big acquisitions recently, the first in
more than a decade.
December's acquisition of Trend Homes, a homebuilder in the
resurgent Phoenix market, came five months after it bought the
Charlotte and Raleigh, N.C., assets of Timberstone Homes. Terms
of both deals were not disclosed.
Each buy added about 1,000 lots to its selling arsenal, most
of them ready to build on.
The acquisitions came after four years of per-share profit
losses and five years of falling revenue.
"As the recovery has occurred in some regions rather quickly,
some builders realize they are starting to run out of developed
land," said analyst Megan McGrath of MKM Partners. "What Ryland
has done well is to more aggressively acquire properties through
acquisitions and its own internal operations."
In the first three quarters of 2012, before the Phoenix deal,
Ryland spent $286 million on land, bringing its lot count to
26,307, up 20% from the earlier year.
The number of its active communities grew 11% to 235, while
another 10 were to open in the fourth quarter.
Ryland's aggressive empire building, most of it internal,
should pay off in the form of above-average order growth,
Thanks also to a reviving housing market, Ryland is expected
to post a profit of 79 cents a share in 2012 and $2.02 in 2013,
for gains of 169% and 156%, respectively, according to Thomson
Revenue is seen rising 42% in 2012 vs. the earlier year to
$1.3 billion and 36% in 2013 to $1.7 billion.
Ryland is one of the top stocks in IBD's building/residential
industry group, along with larger buildersLennar (
) andD.R. Horton (
"Aside from the overall housing market getting better, we are
taking market share in the markets we are in by opening more new
communities," said Drew Mackintosh, Ryland's vice president of
Analyst McGrath says Ryland's aggressiveness is out of
character with the company's historically conservative spending
of cash on its balance sheet.
"My concern was that that they would sit on their cash too
long, but that hasn't been the case," she said.
At the end of the third quarter, but before the Trend Homes'
purchase, Ryland still had $800 million in cash on its balance
sheet, $1.1 billion in debt and $472 million in equity.
Management expects to grow its community count 15% to 20% in
2013, which would be "the highest in our (coverage) universe,"
wrote analyst James McCanless of Topeka Capital Markets.
He said Ryland's growth in closings and backlog in each of the
last four quarters through Q3 exceeded the peer-group
Ryland's closings in Q3 rose 37.4% from the earlier year to
1,312 units. The backlog at the end of the quarter stood at 2,465
homes, up 58%, but 61% higher on a dollar basis thanks to a 5%
uptick in average price.
Meanwhile, incentives and concessions declined, helping boost
Total revenue grew 44.3% to $358.7 million while per-share
profit climbed 344% to 65 cents.
The Phoenix acquisition marked Ryland's re-entry into a market
it had exited during the downturn. One of the hardest hit in the
housing bust, the Phoenix market has been improving dramatically
as excess inventory has been absorbed.
Phoenix continued to lead the recovery in Q3 with a 20.4% gain
in the average annual home price, according to the
S&P/Case-Shiller Home Price Indices.
A lot of overheated markets that fell most during the downturn
have been coming back the strongest, including markets in
Florida. Even Las Vegas has been reviving, with the average home
price up almost 4% in the latest Case-Shiller report.
"We think they are some of the markets that have the best
potential going forward," said Mackintosh.
Ryland's top four markets through Sept. 30 were Houston, Las
Vegas, Indianapolis and Orlando, he says.
Analyst McCanless estimates that Ryland's community openings
are helping to drive the company's expected triple-digit EPS
growth in 2013 as it expands inside its current footprint and
into new markets.
Ryland, based in Westlake Village near Los Angeles, currently
operates in 19 U.S. metro areas, one of the most expansive
footprints of the big public builders.
Demand for Ryland homes is rising "due to declines in
competing supply and improving economies in its key (metro
areas)," McCanless wrote.
In a Q3 conference call, CEO Larry Nicholson said the
company's Western region posted year-over-year order growth of
more than 100%, thanks to above-average sales and growth in the
number of communities.
Ryland was able to raise prices in several communities in Las
Vegas, Denver and Southern California due to a pickup in demand,
The CEO cited Tampa and Orlando markets as having particularly
strong results as well.
Ryland typically targets a third of its homes to first-time
buyers and two-thirds to move-up buyers.
"Our goal is to be a third entry, a third first-move up and a
third second-move up," Mackintosh said.