Yahoo Finance Is Tri Pointe (TPH) a More Alluring Pick Than M/I Homes (MHO)?
The U.S. housing market has been growing since the beginning of 2024 and is expected to move further despite mortgage rates being record high. Demand for single-family homes remained impressive throughout the first quarter of 2024 due to the limited supply of resale and new home inventory and potential homebuyers adjusting to the interest rate environment.
Within the Zacks Building Products - Home Builders industry, most of the industry players performed well this year. Homebuilding companies have consistently revealed impressive quarterly results, expressing optimism about the growth of new orders and deliveries in the upcoming quarters.
The Federal Reserve's decision to maintain interest rates at a 22-year high of 5.25-5.5% brings optimism to the housing market. Moreover, the Fed’s meeting on Jun 11-12 will give more clarity for the first rate cut, which market pundits are predicting in September.
Notably, the stability provides relief for companies like Tri Pointe Homes, Inc. TPH, M/I Homes, Inc. MHO, Taylor Morrison Home Corporation TMHC and PulteGroup, Inc. PHM. Each of these companies currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Based on various parameters, let’s check whether TPH or MHO is a more profitable stock. It is to be noted that both companies are almost neck and neck in terms of market cap.
Determinants of the Stocks
Tri Pointe — with a market cap of more than $3.54 billion — is based in Irvine, CA, and engages in the design, construction, and sale of single-family detached and attached homes in the United States. The company builds premium homes and communities in 10 states.
The company has been benefiting from solid homebuilding industry fundamentals, land acquisition strategy and cost-control measures. Also, strong demographics and limited availability of homes are likely to support the company in the future. The company anticipates that potential homeowners will continue to seek homeownership despite higher home prices and increasing rental costs.
M/I Homes — with a market cap of more than $3.38 billion — is based in Columbus, OH, and remains one of the nation's leading builders of single-family homes. It has been riding high, given its diverse markets, product offerings and strong balance sheet.
With improving housing demand in a high mortgage rate environment, the company remains positive on affordable product offerings, land position and planned new community openings. Also, it continues to focus on controlling overhead leverage, carefully managing investment in land and land development spending, and improving construction cycle times.
Strong Brand Presence & Customer Spectrum
TPH acquires and develops land as well as constructs and sells homes under the Tri Pointe Homes brand. Tri Pointe has a broad spectrum of customers as it is entry-level, move-up, luxury and active adult buyers in 15 markets across 10 states and the District of Columbia.
Whereas, M/I Homes caters to first-time, move-up, empty-nester, and luxury buyers in 17 markets located in nine states. MHO markets and sells homes under the M/I Homes brand.
Both companies’ investments in land acquisition and development are encouraging.
Zacks Consensus Estimate & Stock Performance
The Zacks Consensus Estimate for Tri Pointe’s 2024 earnings indicates a 30.1% year-over-year rise. M/I Homes’ bottom line for 2024 is likely to increase 12.2%. TPH also has a better revenue growth expectation of 16.4% versus MHO’s 5.4% improvement.
Both TPH and MHO’s earnings estimates have moved up in the past 60 days. Also, both stocks flaunt a Value Score of A.
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Shares of Tri Pointe and M/I Homes have gained 21.5% and 10.3%, respectively, in the past six months compared with the industry’s 9.2% growth, Zacks Construction sector’s 13% rise and S&P 500 Index’s 15.5% increase. The overall picture is encouraging, precisely, TPH has performed pretty well compared with MHO and the industry.
Meanwhile, Tri Pointe surpassed earnings estimates in each of the last four quarters, while M/I Homes topped the same in three of the trailing four quarters and missed once. Both companies delivered average earnings surprises of 30.1% and 19%, respectively.
A Look at Stocks’ Profitability & Valuation
Return on Equity in the trailing 12 months for Tri Pointe is 12.4% compared with M/I Homes and the industry’s 20.3% and 15.9%, respectively. This implies that MHO provides more impressive returns to investors than TPH and the collective industry.
The industry is clearly undervalued than the S&P 500, with respect to the forward 12-month price-to-earnings (P/E) ratio. The industry has an average forward 12-month P/E ratio of 9.63, which is below the S&P 500’s average of 21.13. Hence, it might be a good idea to focus on stocks belonging to this industry. This implies that the industry has upside potential for the near future.
Coming to the two stocks under consideration, Tri Pointe and M/I Homes, with a 12-month forward P/E ratio of 7.89 and 6.82, respectively, are undervalued than the S&P 500 and the industry. Here, MHO is the clear winner as it is less pricey than TPH.
Our Take
Tri Pointe certainly has the edge over M/I Homes, as it has a broad customer spectrum, better price performance, prospects and history. Yet, MHO provides impressive returns to investors and has more upside potential for the near future.
The companies remain optimistic about overall homebuilding trends, given promising fundamentals and improving industry parameters.
A Brief Overview of the Other Two Stocks
Taylor Morrison has been benefiting from critical advantages by achieving greater scale, simplifying its operations and embracing innovation to drive both growth opportunities and enhance bottom-line growth. Focus on the operational efficiencies and solid liquidity level are tailwinds.
TMHC has a trailing four-quarter earnings surprise of 15.6%, on average. The consensus estimate for its 2024 sales and earnings per share (EPS) implies increases of 3.7% and 0.7%, respectively, from the prior-year reported levels.
PulteGroup is benefiting from its operating model, which strategically aligns the production of build-to-order and quick-move-in homes with applicable demand across consumer groups.
PHM has a trailing four-quarter earnings surprise of 12.5%, on average. The consensus estimate for its 2024 sales and EPS implies increases of 7.9% and 10%, respectively, from the prior-year reported levels.
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PulteGroup, Inc. (PHM) : Free Stock Analysis Report
Tri Pointe Homes Inc. (TPH) : Free Stock Analysis Report
Taylor Morrison Home Corporation (TMHC) : Free Stock Analysis Report
M/I Homes, Inc. (MHO) : Free Stock Analysis Report
