M.D.C. Holdings, Inc.

 M.D.C. Holdings, Inc. (NYSE: MDC) is engaged in the business of homebuilding and financial services. The Company's segments include West, including segments located in Arizona, Californila, Nevada and Washington, and Oregon. The homebuilding operations consist of subsidiary companies that purchases finished lots or develop lots necessary for the construction and sale of single-family detached homes to first-time and first-time move-up homebuyers under the name Richmond American Homes.

MDC Details

Latest News

• Capturing new market share: Richmond American Debuts New Community and Homes in Pueblo is hosting an open house for both communities at the Villa Bella location, and potential buyers and agents are encouraged to stop by for model home tours, a complimentary lunch and a special prize drawing
• Relentless growth and acquisitions: MDC has been reaping benefits from a robust build-to-order process, relentless land acquisitions and efforts to provide affordable homes. Also, robust housing demand is working as a catalyst for its growth.

Key Takeaways from Q1 FY22 financial results

• Growing Revenue: MDC's revenue climbed by 19% to USD 1.24 billion in Q1 FY22 from USD 1.04 billion in Q1 FY21, owing to a 3% rise in unit deliveries to 2,233.

• Strong Balance Sheet and Cash flows: MDC´s free-cash-flow generation has been constrained of late, earnings continue to grow as more units continue to be delivered. Furthermore, the company´s interest coverage ratio is negligible, which means MDC´s financial base is sound. This is bullish for sustainable dividend growth. 

• Robust Dividend Growth: Growth of the annual payout has actually increased in recent years, with the 12-month average annual growth rate coming in at 30.6% compared to the 3-Year compounded annual growth rate of 19.58% and 5-Year equivalent of 15.46%.
  

Key Risks:

The COVID-19 pandemic had a major impact on the U.S. economy between 2020 and 2021, shaking consumer demand, the financial markets, and employment levels. With unease over an uncontrolled inflationary environment likely to adversely impact consumers' purchasing power investors are cautious about real estate demand, interest rate risks, and others.

Outlook

• Estimated Home Deliveries: Home deliveries are expected to range between 2,400 and 2,600 in Q2 FY22 and between 10,500 and 11,000 in FY22.
• Distinct Build-to-Order Model: Ability to select a lot, plan and options helps create an end-to-end customer experience.
• Higher gross margin from home sales: Home sales gross margins are expected to surpass 26.0% in Q2 FY22.

Source: Company Presentation

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: REFINITIV, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.            

Stock Recommendation

MDC reported solid performance in the Q1FY22, with revenue up 19% on YoY, there has been outstanding demand across all homebuilding divisions, Distinct Build-to-Order Strategy is a key differentiator for MDC. Another strength of MDC is the ability to analyze customer preferences and quickly adjust pricing based on customer demand thus giving Higher margin products help drive higher gross margin from home sales.

From a technical standpoint, the stock price has dropped 41.43% in the last nine months Currently, the stock is trading towards the low end of its 52-week trading range of USD 27.83 to USD 56.53. On weekly price chart, MDC shares are back to the pre COVID levels where we have seen sharp recovery post the market got stable, so a pullback is expected from the current level. Further on daily price chart MDC shares with leading momentum indicator 14-day RSI is in the Oversold zone of less than 25 so a pullback is expected from these levels and staying above 21-day SMA could bring short-term strength in stock from the current trading levels.

Based on outstanding demand across all homebuilding divisions, the company's quarterly growth, increased revenues, improved gross margins, recent acquisitions, related risks, and current valuation. We recommend a "Hold" rating on the stock at the current price of USD 31.45, up 2.08% as of June 24, 2022.

1-Year Technical Chart, as of June 24, 2022. Data Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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