M.D.C. Holdings, Inc.

MDC Details

Key Positives:

Industry leading EBITDA margin (15.3% vs Industry median of 14.6%), Industry Above Net Margin (10.9% in FY21 vs Industry median of 9.7%), Healthy Demand in Housing Industry, Strong Outlook, Geographic Footprints, Consistent dividend payer, Yielding significantly higher (Dividend Yield of 5.49%)

Key Negatives:

Land Availability Risk, Longer Cash Conversion Cycle (287.7 days in Q4 FY21 vs Industry median of 114.9 days)

 M.D.C. Holdings, Inc. (NYSE: MDC) is a holding company whose operations may be divided into two categories. Under the name Richmond American Houses, the firm purchases or develops completed lots to construct and sell single-family detached houses to first-time and first-time move-up homeowners, and Financial Services, which provides mortgage financing and insurance services to customers.

Latest News:

• New Model Inauguration: On April 7, 2022, MDC announced the grand opening of an exceptional new model house at Seasons at Warm Spring Ridge in Chambersburg. The Lapis model comes equipped with 9' main-floor ceilings, quartz worktops, a study, a multifunctional loft, and a peaceful covered patio. There are six more ranch and two-story floor designs in the popular neighborhood with open main-floor layouts and designer embellishments.

FY21 Results:

• Increased Revenue: MDC’s Homebuilding revenue has gone up by 35.51% year over year to USD 5.10 billion in FY21 (ending December 31, 2021), up from USD 3.77 billion in FY20, due to stronger sales volume and attractive pricing. The growth in mortgage demand drove the financial services income up to USD 152.21 million in FY21 from USD 135.83 million in FY20.
• Robust Bottom Line: Net income for FY21 climbed 56.06% on YoY to USD 573.66 million from USD 367.58 million in FY20, resulting in an increase in Basic EPS to USD 8.13 in FY21 from USD 5.33 in FY20. This was primarily drive by solid surge in the topline.
• Cash and Debt Position: As of December 31, 2021, the firm has USD 590.66 million in cash and cash equivalents and USD 1.75 billion in total debt.

Key Risks:

• 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:

• Q1 FY22 Guidance: MDC expects house deliveries to be between 2,000 and 2,300 units in Q1 FY22, with an average selling price (ASP) of USD 550,000 to 560,000. It also expects a 25% gross profit on home sales, excluding impairments and warranty adjustments.
• FY22 Guidance: Home deliveries are expected to be 10,500 to 11,000 units in FY22.

Valuation Methodology: EV/SALES Multiple based Relative Valuatio

(Source: Analysis by Kalkine Group)

Stock Recommendation:

MDC's stock price has fallen 34.27% in the past three months and is 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/Sales-based relative valuation methodology and arrived at a target price of USD 42.44.

Considering the significant correction in the stock price, strong demand patterns across regional footprints, growing sales, higher profit margins, new community launches, associated risks, and current valuation. We recommend a "Hold" rating on the stock at the current price of USD 36.26, down 0.41% as of April 18, 2022, at 12:13 PM PDT.

 MDC’s 1 Year Technical Price Chart (as of April 18, 2022, at 12:13 PM PDT). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.