M.D.C. Holdings, Inc.

MDC Details

M.D.C. Holdings, Inc. (NYSE: MDC) engages in the homebuilding and financial service businesses. Homebuilding, in which the company acquires or develops finished lots for the construction and sale of single-family detached homes to first-time and first-time move-up homeowners under the brand Richmond American Houses, and Financial Services, in which the company provides mortgage financing and insurance to homebuyers.

Latest News:

• Launch of New Community: On March 23, 2022, Richmond American Homes of California, a subsidiary of MDC, announced the Grand Opening of Heritage at Braverde, a new community in the Braverde concept. In addition, on March 8, 2022, Richmond American Homes of Florida, LP, a subsidiary of MDC, announced that it had recently purchased and closed on land for 80 prospective homesites in Mascotte.

FY21 Results:

• Boost in Topline: The company recorded a YoY increase in homebuilding revenues of 35.51% to USD 5.10 billion in FY21 (ended December 31, 2021) compared to USD 3.77 billion in FY20, owing to higher sales volume and favorable pricing. The income from Financial Services climbed to USD 152.21 million in FY21 from USD 135.83 million in FY20, owing to an increase in mortgage demand.
• Rise in Profitability: Net income for FY21 increased 56.06% YoY and stood at USD 573.66 million compared to USD 367.58 million in FY20.
• Cash and Debt Position: As of December 31, 2021, the company has USD 590.66 million in cash and cash equivalents and total debt of USD 1.75 billion.

Key Risk:

• Land Availability Risk: MDC's subsidiaries' ability to purchase property for residential community development is essential to the company's operations. As a result, any change in the general availability of property, land sellers' inclination to sell land at fair rates, finance, zoning, or other restraints could impact MDC's ability to purchase land and, thus, its financial performance.

Outlook:

• Q1FY22 Guidance: MDC anticipates 2,000 – 2,300 home deliveries in Q1FY22, with an average selling price (A.S.P.) of USD 550,000 – 560,000. It also predicts a 25% gross margin on home sales, excluding impairments and warranty adjustments.
• FY22 Guidance: Home deliveries are expected to be between 10,500 and 11,000 units in FY22.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(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's stock price has fallen 26.13% in the past three months and is currently leaning towards the lower end of its 52-week range of USD 39.21 to USD 63.86. We have valued the stock using the E.V./EBITDA-based relative valuation methodology and arrived at a target price of USD 49.70.

Considering the significant correction in the stock price, robust financial performance, solid profit margins, stable dividend yield, the launch of new communities, optimistic outlook, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 39.84, down 0.60% as of March 24, 2022.

Three-Year Technical Price Chart (as of March 24, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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

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