M.D.C. Holdings, Inc.

MDC Details

M.D.C. Holdings, Inc. (NYSE: MDC) is a holding company whose operations are divided into two segments. 1) Homebuilding, 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 2) Financial Services, which offers mortgage financing and insurance services for homebuyers.

Latest News:

• Quarterly Dividend: On January 24, 2022, the company declared a quarterly dividend of USD 0.50 per common share, payable on February 23, 2022, to shareholders of record on February 09, 2022.
• Launch of New Community: On January 20, 2022, Richmond American Homes of California, a subsidiary of MDC, announced the opening of Running Deer Estates in Lake Elsinore. This new community offers five single-story floor plans with designer touches and open, inviting layouts per today's homeowner's demands. Previously, on January 11, 2022, it concluded land purchase for 102 future home sites in Mount Dora.

FY21 Results:

• Growth in Topline: The company reported a YoY surge of 35.51% inhomebuilding revenues to USD 5.10 billion in FY21 (ended December 31, 2021) compared to USD 3.77 billion in FY20, attributable to higher sales volume and favorable pricing. The Financial Services revenue increased to USD 152.21 million in FY21 from USD 135.83 million in FY20 driven by increase in mortgage demand.
• Surge 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: The company had USD 590.66 million in cash and cash equivalents as of December 31, 2021, and total debt of USD 1.75 billion.

Key Risk:

• Land Availability Risk: MDC's subsidiaries' capacity to acquire land for the development of residential communities is critical to the company's operations. As a result, any change in the general availability of land, land sellers' desire to sell land at reasonable rates, finance, zoning, or other constraints could influence MDC's capacity to purchase land and, as a result, its financial success.

Outlook:

• Q1FY22 Guidance: In Q1FY22, MDC expects its home deliveries to range between 2,000 – 2,300 units, at an average selling price (ASP) of USD 550,000 – 560,000. It also forecasts its home sales gross margin to be ~25%, excluding impairments and warranty adjustments.
• FY22 Guidance: For FY22, the home deliveries are estimated to be in the range of 10,500 – 11,000 units.

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 23.58% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 43.27 to USD 63.86. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 53.99.

Considering the significant correction in the stock price, robust financial performance, solid profit margins, stable dividend yield, launch of new communities, encouraging outlook, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 44.30, down 2.53% as of February 10, 2022, at 01:18 PM ET.

Three-Year Technical Price Chart (as on February 10, 2022, at 01:18 PM ET). 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.