Despite high inflation and logistical disruptions, the homebuilding industry has remained red hot over the past few months. Investors’ interest in this space is evident in the SPDR S&P Homebuilders ETF’s (XHB) 7.4% returns over the past three months versus the SPDR S&P 500 Trust ETF’s (SPY) 4.2% returns.

And according to the NAHB/Wells Fargo Housing Market Index (HMI), builder sentiment in the market for newly-built single-family homes moved one point higher to 84 in December. According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, privately‐owned housing starts in November increased 11.8% year-over-year.

Homebuilding activities are expected to continue soaring as people spend more time at home amid new COVID-19-related restrictions and with them an extension of the work-from-home trend. Given this backdrop, Wall Street analysts expect homebuilding stocks PulteGroup, Inc. (PHM), Meritage Homes Corporation (MTH), and M.D.C. Holdings, Inc. (MDC) to rally more than 25% in price in the near term.

PulteGroup, Inc. (PHM)

Through its subsidiaries, PHM in Atlanta, Ga., is involved primarily in the home building business in the United States. The company acquires and develops land primarily for residential purposes, and constructs housing on such land.

On October 26, 2021, Ryan Marshall, PHM President and CEO said, “The housing industry continues to experience robust demand, but significant disruptions in the manufacture and supply of many building products are extending overall build cycles. We are working closely with our homebuyers and supply partners as we manage through today’s challenging conditions.”

PHM’s total revenues increased 17.7% year-over-year to $3.48 billion for the third quarter, ended September 30, 2021. Its home sale revenues came in at $3.32 billion, up 17.7% year-over-year. Its net income increased 14.2% year-over-year to $475.55 million, while its EPS came in at $1.82, up 18.2% year-over-year.

Analysts expect PHM’s revenue and EPS to grow 25.3% and 38.2%, respectively, year-over-year to $13.83 billion and $7.16for its fiscal 2021. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 8.9% in price to close Friday’s trading session at $52.98. Wall Street analysts expect the stock to hit $66.67 in the near term, which indicates a potential upside of 25.8%.

Meritage Homes Corporation (MTH)

MTH designs and builds single-family homes. The company operates through two segments: Homebuilding and Financial Services. Also, it offers title insurance and closing/settlement services to its homebuyers. MTH is headquartered in Scottsdale, Ariz. On August 24, MTH announced new, innovative enhancements that allow customers to choose a home buying path that aligns with their shopping style. Phillippe Lord, the company’s CEO, said, “We embrace innovation to improve and optimize the overall customer experience whether buyers choose to interact with us in-person, online or a mix of both, while ensuring 24/7 customer support.”

For the third quarter, ended September 30, 2021, MTH’s home closing revenue increased 10.4% year-over-year to $1.25 billion. The company’s net earnings came in at $200.75 million, representing an 84% year-over-year rise. In addition, its EPS was  $5.25, up 84.9% year-over-year.

MTH’s revenue is expected to be $6.08 billion in its fiscal 2022, representing an 18.2% year-over-year rise. The company’s EPS is expected to increase 74.8% year-over-year to $19.23 in the current year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 19.7% in price to close Friday’s trading session at $112.44. Wall Street analysts expect the stock to hit $148.20 in the near term, which indicates a potential 31.8% upside.

M.D.C. Holdings, Inc. (MDC)

MDC, through its subsidiaries, engages in the homebuilding and financial service businesses. The Denver, Colo.-based concern’s segments include homebuilding operations and financial services operations. Also, it conducts its homebuilding operations in Arizona, Washington, Oregon, Maryland, and Florida.

On November 10, Richmond American Homes of Florida, LP, a subsidiary of MDC, announced that it had purchased the land for 175 future homesites in St. Cloud. This is expected to boost the company’s revenue.

MDC’s home sale revenues increased 25.7% year-over-year to $1.26 billion for its  fiscal third quarter, ended September 30, 2021. The company’s net income came in at $145.95 million, up 47.5% year-over-year. Furthermore, its EPS increased 44.2% year-over-year to $1.99.

For its fiscal 2021, analysts expect MDC’s revenue to be $5.34 billion, representing a 36.8% year-over-year rise. The company’s EPS is expected to increase 57.3% year-over-year to $8.13 in its fiscal 2021. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 12.4% to close Friday’s trading session at $53.29. Wall Street analysts expect the stock to hit $68.50 in the near term, which indicates a potential 28.5% upside.

PHM shares were trading at $51.34 per share on Monday afternoon, down $1.64 (-3.10%). Year-to-date, PHM has gained 20.38%, versus a 22.45% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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