M.D.C. Holdings, Inc.

MDC Details

M.D.C. Holdings, Inc. (NYSE: MDC) through its subsidiaries, engaged in the homebuilding and financial service businesses. Its homebuilding operations include purchasing finished lots or developing lots for the construction and sale primarily of single-family detached homes to first-time and first-time move-up homebuyers under the Richmond American Homes name. Its financial services operations comprise originating mortgage loans primarily for homebuyers; providing insurance coverage primarily to its homebuilding subsidiaries and subcontractors for homes sold by its homebuilding subsidiaries. M.D.C. Holdings, Inc. was founded in 1972 and is headquartered in Denver, Colorado.

Latest News:

• Entering new market: Richmond American Homes of New Mexico, Inc., a subsidiary of M.D.C. Holdings, Inc., has announced plans to build multiple new communities in the Albuquerque area.
• Jones Acquisition by Richmond American: The company announced that its subsidiary, Richmond American Homes of Tennessee, Inc., has entered into an asset purchase agreement to acquire substantially all of the homebuilding assets of The Jones Company of Tennessee, LLC. Jones closed over 370 homes in fiscal year 2021 in the Nashville area with an average sales price of USD 564,000, generating revenues of USD 209 million. The company expects the transaction to close near the end of the second quarter of 2022, and it is expected to add approximately 10 selling communities, 1,700 controlled lots and 150 units in backlog to the operations of Richmond American. Consummation of the transaction is subject to the approval of the MDC board of directors and customary conditions.

Q1 FY22 Results:

• Growing Revenue: MDC's revenue climbed by 19% to USD 1.24 billion in Q1 FY22 from USD 1.04 billion in Q1 FY21, owing to a 3% rise in unit deliveries to 2,233. Also reported a 380bps improvement in gross margin from house sales to 25.7% from 21.9% a year before.
• Robust Bottom Line: MDC's net income in Q1 FY22 was USD 148.4 million, or USD 2.02 per diluted share, up 34% from USD 110.7 million, or USD 1.51 per diluted share in the same period of the corresponding financial year.
• Strong Balance Sheet: The company has reported USD 588.35 million of Total cash, cash equivalents and restricted cash at the end of Q1FY22, with no outstanding debt position.

Key Risks:

The company is exposed a variety of risks ranging from hyper-inflationary pressure can squeeze margin profile, increase in building material prices, slowdown in the broader economy that can have a weigh on the real estate demand, interest rate risks, and others.

2022 Outlook:

• Estimated Home Deliveries: Home deliveries are expected to range between 2,400 and 2,600 in Q2 FY22 and between 10,500 and 11,000 in FY22.
• Estimated Gross Margins: Home sales gross margins are expected to surpass 26.0% in Q2 FY22.

Valuation Methodology: EV/SALES Multiple based Relative Valuation

(Source: Analysis by Kalkine Group)

Stock Recommendation:

MDC's stock price has fallen 26.68% in the past six months and is leaning towards the lower end of its 52-week range of USD 58.93 to USD 34.56. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 43.25.

Based on outstanding demand across all homebuilding divisions, the company's huge quarter-end backlog, increased revenues, improved gross margins, recent acquisitions, related risks, and current valuation. We recommend a "Hold" rating on the stock at the current price of USD 36.51, down 4.03% as of May 18, 2022, at 10:25 AM PDT.

MDC’s 1 Year Technical Price Chart (as of May 18, 2022, at 10:25 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

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. 

Note 3: The report publishing date is as per the Pacific Time Zone.