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M.D.C. Holdings, Inc. (MDC) Down 3.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for M.D.C. Holdings, Inc. (MDC). Shares have lost about 3.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is M.D.C. Holdings, Inc. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

MDC’s Q1 Earnings & Revenues Beat Estimates, Orders Decline

M.D.C. Holdings reported impressive earnings for first-quarter 2023. Its earnings handily surpassed the Zacks Consensus Estimate. Revenues also beat the same, backed by improving mortgage rates and a low unemployment rate. Impressively, MDC expects an increasing community count to help drive volume in 2023.

However, earnings and revenues declined year over year due to volatile market conditions.

MDC's executive chairman, Larry A. Mizel, said, "2023 is off to a great start, thanks to a combination of improved market conditions and strategic pricing initiatives, we have seen a rebound in homebuying activity to start the year. Net new orders in the first quarter increased significantly relative to the fourth quarter of 2022, as buyers returned to the market for the start of the spring selling season. Order momentum built as the quarter progressed, and we saw order totals increase on a sequential basis each month."

Earnings & Revenue Discussion

The company reported quarterly earnings of $1.08 per share, which strongly beat the consensus estimate of 44 cents by 145.5%. Yet, the bottom line decreased by 46.5% from the year-ago quarter’s figure of $2.02. The downside was due to moderation in housing demand and other industry headwinds.
 
Total revenues (including Home sale revenues and Financial Services revenues) of $1.05 billion topped the consensus mark of $889 million by 18.1% but declined 17.3% on a year-over-year basis from $1.27 billion reported a year ago.

Segment Details

Homebuilding: Home sale revenues of $1.02 billion fell 17.7% from the prior-year period’s levels, thanks to a 0.9% lower average selling price or ASP. Units delivered were down 17.1% from the year-ago level to 1,851 homes.

Gross new orders fell 33.4% from the prior-year quarter to 2,520 homes and net new orders fell 43.9% to 1,767 units. The value of net orders also declined 48% from the year-ago quarter’s levels to $957.3 million due to a 7.1% lower ASP of net orders. Cancellations, as a percentage of gross sales, increased to 29.9% from 16.7%. The monthly absorption rate was also down 53% year over year.

At the end of the quarter, the backlog totaled 2,890 homes, down 66% from a year ago. Potential housing revenues from backlog dipped 66% from the prior-year period’s levels to $1.66 billion due to a 1% higher ASP.

Housing gross margin contracted 890 basis points (bps) year over year to 16.8%. Selling, general and administrative expenses — as a percentage of housing revenues — improved 110 bps from the year-ago quarter’s figure to 9.3%.

Financial Services’ revenues rose 1.2% year over year to $29.5 million.

Balance Sheet & Cash Flow

MDC had cash and cash equivalents of $781.7 million in the Homebuilding segment and $21 million in the Financial Services unit as of Mar 31, 2023. This compares with 2022-end numbers of $696.1 million and $17.9 million, respectively.

Inventories declined to $3.26 billion from $3.52 billion at the 2022-end. Lots owned and optioned of 22,942 on March 2023-end was down by 39% from 25,302 at 2022-end. The debt to capital ratio was 32.3% on Mar 31, 2023 versus 32.6% at 2022-end.

Net cash provided by operations was $426.2 million compared with $118.1 million a year ago.

Q2 2023 Guidance

For second-quarter 2023, the company expects home deliveries of between 1,600 and 1,700 units. This indicates a fall from 2,233 units reported in first-quarter 2022. The average selling price is likely to be approximately $550,000 compared with $556,000 reported a year ago. Housing gross margin (assuming no impairments or warranty adjustments) is anticipated at 17% compared with 25.7% reported in the prior-year period.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

VGM Scores

At this time, M.D.C. Holdings, Inc. has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise M.D.C. Holdings, Inc. has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

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