M.D.C Holdings, Inc. (MDC) is involved in homebuilding and financial services. The company engages in the purchase, development, and sale of construction lots, primarily for single-family detached homes and first-time move-up homebuyers under the ‘Richmond American Homes’ brand.

The low interest rate environment has propelled the homebuilding sector’s growth this year. Mortgage rates hit another record low this month for the fourteenth time this year. MDC remains favorably positioned to capitalize on this industry backdrop with its expanding geographic footprint and build-to-order operating model.

MDC’s solid market position and successful cost control initiatives have allowed it to gain 33.7% over the past year. This impressive performance combined with several other factors has helped MDC earn a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates MDC:

Trade Grade: A

MDC is currently trading above its 50-day and 200-day moving averages of $47.77 and $38.72, respectively, indicating that the stock is in an uptrend. Also, the stock has gained 10.4% over the past three months, reflecting short-term bullishness.

MDC’s home sales revenue has increased 33% year-over-year to $1 billion in the fiscal third quarter ended October 31, 2020. Net income grew 96% from the year-ago value to $98.90 million, while EPS rose 88.6% to $1.49. Gross margin from home sales increased 170 basis points to 20.5% over this period.

On December 2, Richmond American Homes of Oregon, a subsidiary of MDC, announced the opening of two new model homes at Kemper Grove in Ridgefield. The company has also debuted new model homes in Dixon, Fontana, and Red Rock recently. We think this expansion should boost MDC’s revenues significantly.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, MDC is well positioned. The stock is currently trading just 2.9% below its 52-week high of $52.50, which it hit on October 16^th.

The company’s net revenue grew at a CAGR of 13.5% over the past three years, while net income grew at a CAGR of 25.6% over this period. MDC’s EPS increased at a CAGR of 22.9% over the past three years.

Peer Grade: A

MDC is currently ranked #2of 21 stocks in the Homebuilders industry. Other popular stocks in this industry are Taylor Morrison Home Corporation (TMHC), M/I Homes, Inc. (MHO) and Beazer Homes USA, Inc. (BZH).

TMHC, MHO, and RMD have gained 24.6%, 18.2%, and 9.1% over the past year, respectively. This compares to MDC’s 33.7% returns over this period.

Industry Rank: C

The Homebuilders industry is ranked #75 of the 123 StockNews.com industries. The companies in this industry are involved in the acquisition and development of land, and construction and sale of residential homes.

Construction project cancellations and possible supply chain bottlenecks inhouse building equipment and materials caused by the pandemic have presented a wide range of challenges for this industry. With many sites still facing operational restrictions, much needs to be done to facilitate the recovery of the industry in the upcoming months.

Overall POWR Rating: A (Strong Buy)

MDC is rated “Strong Buy” due to its impressive financials, short- and long-term bullishness, and solid price momentum, as determined by the four components of our overall POWR Rating.

Bottom Line

MDC is well-positioned to climb despite gaining 33.7% over the past year because more people are migrating away from crowded cities to the suburbs. Also, the Federal Reserve’s pledge to keep the interest rate low for years to come should work favorably for the company.

Analyst sentiment, which provides a good sense of a stock’s future price movement, is good MDC. It has an average broker rating of 1.62, indicating favorable analyst sentiment. The consensus EPS estimate of $1.74 for the current quarter ending December 31, 2020 indicates a 22.5% improvement year-over-year. Moreover, MDC has an impressive earnings surprise history with the company beating the EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $1.22 billion for the current quarter indicates a 10.4% increase from the same period last year.

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MDC shares were unchanged in after-hours trading Monday. Year-to-date, MDC has gained 37.56%, versus a 15.93% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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