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Solid Housing Backdrop to Aid M.D.C. Holdings (MDC) Q3 Earnings

M.D.C. Holdings, Inc. MDC or MDC is slated to release third-quarter 2020 results on Oct 29, before the opening bell.

In the last reported quarter, the company’s earnings and revenues handily surpassed the Zacks Consensus Estimate by 59.8% and 14.5%, respectively. On a year-over-year basis, earnings and revenues grew 52.3% and 22.4%, respectively, buoyed by a recovery in demand.

The company surpassed earnings estimates in two of the trailing four quarters, with the average surprise being 11.3%.

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

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has increased 1.7% to $1.20 per share over the past 60 days. The said figure indicates a 51.9% increase from the year-ago earnings of 79 cents per share. Also, the consensus mark for revenues is $961.8 million, suggesting 24.5% year-over-year growth.

Factors to Note

MDC’s third-quarter Homebuilding revenues (which account for 96.4% of total revenues) are expected to have increased from the year-ago level, buoyed by solid U.S. housing market fundamentals. MDC — one of the country’s largest homebuilders — has been benefiting from resilient housing market conditions backed by record low mortgage rates, a lack of available supply and a highly motivated buyer. Also, buyers have been seeking homes in lower-density areas, thereby giving a boost to new home construction in such regions.

Also, benefits of its build-to-order strategy — which caters to the wants and needs of a large segment of the buying population — have been encouraging. This strategy allows MDC to attain higher-margin revenues from home galleries and reduced volatility in results, as well as provides it with a competitive advantage relative to spec-focused builders. Its build-to-order operating model also limits the need to use price discounts or heavy incentives. In fact, the company has been actively raising prices and scaling back incentives due to strong demand.

Solid housing market conditions are evident from improved monthly U.S. home sales data. Markedly, existing home sales grew for the fourth consecutive month in September, according to the National Association of Realtors. Single-family housing starts, the largest share of the housing market, jumped 8.5% to a rate of 1.108 million units last month. Overall, housing starts increased 1.9% to a seasonally adjusted annual rate of 1.415 million units last month.

Last month, MDC announced an increase in net new home order activity for the first two months of third-quarter 2020. Net new home orders for the said period increased a whopping 75% year over year to 2,477 from 1,418 reported a year ago. The upside was backed by a 73% improvement in the monthly sales absorption rate of 6.48 and 1% rise in the average number of active subdivisions of 191.

Regionally, west contributed 72%, Mountain added 86% and East accounted for 64% of total net new order growth.

MDC expects deliveries between 1,900 and 2,100 homes for the third quarter. The consensus mark for home sale revenues is currently pegged at $933 million, which indicates 24.4% year-over-year growth.

Average selling price or ASP for third-quarter unit deliveries is expected to be more than $460,000. The Zacks Consensus Estimate for ASP is currently pegged at $460, implying a 7.5% increase from the year-ago period.

The company expects third-quarter gross margin from home sales to be 20% (excluding impairments and warranty adjustments). The metric was 18.8% in the year-ago period.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for MDC in the quarter to be reported. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that’s not the case here.

Earnings ESP: The company has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, MDC 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.

TopBuild Corp. BLD has an Earnings ESP of +1.43% and holds a Zacks Rank #2.

Installed Building Products, Inc. IBP has an Earnings ESP of +4.24% and carries a Zacks Rank #1.

D.R. Horton, Inc. DHI has an Earnings ESP of +2.26% and carries a Zacks Rank #3.

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

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