M.D.C. Holdings, Inc.

MDC Details

M.D.C. Holdings, Inc. (NYSE: MDC) is a holding company whose operations are characterized 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:

• Launch of New Community: MDC announced the grand inauguration of an outstanding new model house at Seasons at Warm Spring Ridge in Chambersburg on April 7, 2022. The wholly furnished Lapis model features 9' main-floor ceilings, quartz countertops, a study, a multipurpose loft, and a quiet covered terrace. Six other ranch and two-story floor plans with open main-floor layouts and designer touches are available in the popular neighborhood.

FY21 Results:

• Growth in Topline: The company reported a YoY growth 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: The ability of MDC's subsidiaries to obtain property for residential development is essential to the company's operations. As a result, any change in land availability, land sellers' inclination to sell land at affordable rates, finance, zoning, or other restraints could affect MDC's ability to purchase land and, as a result, its financial performance.

Outlook:

• Q1FY22 Guidance: In Q1FY22, MDC anticipates 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: Home deliveries are expected to be in the range of 10,500 to 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 24.66% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 34.69 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 45.00.

Considering the significant correction in the stock price, strong financial performance, robust profit margins, stable dividend yield, launch of new communities, positive outlook, associated risks, and current valuation. We recommend a "Buy" rating on the stock at the current price of USD 36.09, up 1.62% as of April 11, 2022, at 07:55 AM PDT.

Three-Year Technical Price Chart (as on April 11, 2022, at 07:55 PM PDT). 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.