The demand for new homes has increased significantly over the past year, with buyers looking to relocate from cities to suburban locals for bigger living spaces amid the remote working trend. This, along with a surge in interest in existing-home renovation and do-it-yourself (DIY) projects, has led to soaring demand for lumber. As the demand for lumber increased last year, the production capabilities of sawmills remained limited due to COVID-19 pandemic-related restrictions. Consequently, lumber prices have soared over the past year.

However, according to industry trade publication Random Lengths, the cash price per thousand board feet of lumber fell 27% last week from its $1,515 all-time high, which it hit on May 28.This can be attributed primarily to increasing production at sawmills as major economies continue to reopen and mill workers return to their jobs. Consequently,  several homebuilding projects that were put on hold due to high lumber prices are expected to resume in the near term.

So, based on these factors, we think it could now be wise to bet on the shares of established homebuilding companies Skanska AB (SKBSY), Tri Pointe Homes, Inc. (TPH), and Hovnanian Enterprises, Inc. (HOV). They are expected to generate significant returns in the coming months.

Skanska AB (SKBSY)

Headquartered in Stockholm, Sweden, SKBSY is a project development and construction company. It  operates through four segments: construction , residential development, commercial property development and infrastructure development. It has operations in the United States, Poland and Hungary, among other countries.

SKBSY’s revenue from its  residential development segment increased 32.6% year-over-year to SEK 4.51 billion ($529.12 million) for the first quarter, ended March 31, 2021. The company’s operating cash flow from operations came in at SEK 3.26 billion ($382.47 million), which represents a 100.1% year-over-year rise. Its interest-bearing net receivables for the quarter were  SEK 8.79 billion ($1.03 billion) compared to a net debt of SEK 3.24 billion ($380.13 million) in the prior-year quarter.

The company’s revenue is expected to increase 7.4% year-over-year to $4.30 billion for the current quarter ending June 30, 2021.

On June 15, in a joint venture with Hoffman Construction Company, SKBSY signed a contract amendment with the Port of Portland for improvements to the Portland International Airport in Portland, Oregon. This is expected to be reflected positively in its U.S. order bookings for the second quarter (ending June 30, 2021). The stock has gained 34.5% over the past year to close yesterday’s trading session at $26.17.

It’s no surprise that SKBSY has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock also has a B grade for Stability, Value, and Momentum. Click here to see SKBSY’s ratings for Quality, Sentiment, and Growth as well.

SKBSY is ranked #1 of 25 stocks in the B-rated Homebuilders industry.

Tri Pointe Homes, Inc. (TPH)

TPH designs, builds and sells single-family attached and detached homes. The company’s homebuilding operation consists of six segments: Maracay Homes, Pardee Homes, Quadrant Homes, Trendmaker Homes, TRI Pointe Homes, and Winchester Homes. It also provides financial services, such as mortgage financing.

TPH’s generated home sales revenue of $716.68 million in the first quarter (ended March 31, 2021) representing a 20.5% year-over-year increase. The company’s net income increased more than 122% year-over-year to $70.80 million. Also, its EPS came in at $0.59, up 145.8% year-over-year.

Analysts expect TPH’s EPS and revenue to increase 90.7% and 28.1%, respectively, year-over-year to $0.82 and $983.75 million for the current quarter, ending June 30, 2021. Moreover, it surpassed the Street’s EPS estimates in each  of the trailing four quarters.

The company announced in January that it was consolidating its six regional homebuilding brands under one unified name—Tri Pointe Homes. TPH’s CEO Doug Bauer said, “Operating as one brand will allow us to concentrate our functional efforts around one brand instead of six while creating a stronger national awareness for the company.” The stock has rallied 21.9% over the past six months to close yesterday’s trading session at $21.60.

TPH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Growth, Value, and Quality also. Click here to see the additional POWR Ratings for TPH (Sentiment, Momentum, and Stability).

TPH is ranked #3 in the Homebuilders industry.

Hovnanian Enterprises, Inc. (HOV)

Residential homes builder HOV designs, builds, markets, and sells single-family detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes. It operates through two segments: homebuilding and financial services.

HOV’s total revenues increased 30.6% year-over-year to $703.16 million for its fiscal second quarter, ended April 30, 2021. The company’s net income for the quarter came in at $488.68 million versus  $4.08 million in the prior-year quarter. Its adjusted EBITDA was  $76.36 million, up 46.6% year-over-year.

The company’s CEO, Ara K. Hovnanian said, “For the second consecutive quarter, our contract backlog dollars increased 85% year over year. Despite increased material and labor costs, gross margins on contracts currently in our backlog along with continued strong demand for new homes gave us the confidence to raise our full fiscal 2021 profitability guidance.” The stock has soared 194.1% over the past six months to close yesterday’s trading session at $108.54.

It’s no surprise that HOV has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Value, and a B grade for Growth. Click here to see HOV’s ratings for Stability, Sentiment, Momentum, and Quality also.

HOV is ranked #4 in the Homebuilders industry.

SKBSY shares were trading at $26.17 per share on Wednesday morning, down $0.00 (0.00%). Year-to-date, SKBSY has declined -4.14%, versus a 13.92% rise in the benchmark S&P 500 index during the same period.

About the Author: Ananyo Guha Niyogi

Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...

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