MDC Holdings' (MDC, Financial) healthy balance sheet will support the company’s key growth efforts and enables it to successfully execute upon its robust new home orders backlog. More importantly, the company is seeing an increase in community count in the West, with Arizona and California witnessing the top growth. It also witnessed significant growth in the community count for Colorado, Nevada and Florida. Moreover, MDC’s expected active communities count is forecast to exceed its estimated inactive communities, which increased by an overall 11 percent and would be added to the total community count for the remaining year.
The future looks bright
There’s considerable liquidity available with MDC for investing in innovative homebuilding assets that should enable its growth. However, MDC is cautiously underwriting the new assets with demand and moderation estimated to flatten in the some previous quarters which might post an excellent opportunity for developing new land at higher prices and terms.
MDC offered 1,093 new homes in the quarter, a decrease of 13% on a year-over-year basis. Its total home deliveries comprised of a major percentage of its spec home deliveries, with 59% of its third quarter deliveries accounting for spec homes compared to just 47% in the previous year. However, MDC delivered a reduced percentage of spec homes in the third quarter of 2014, compared to the second quarter of 2014 on a sequential basis.
MDC is seeing continued decline in the net home orders coupled with lowering of the backlog conversion rate for the quarter.
On a year-over-year basis, every region of MDC witnessed an average home price expansion, with the West witnessing the highest price expansion at 11% and its mountain segment recording 10%. The California segment of MDC delivered the highest home price expansion at 23%, partially owing to an enhanced percentage of deliveries from Los Angeles and Orange Counties, compared to the previous year.
Due to increased orders and community count in the previous 2 quarters, MDC registered an increase in its homes backlog after a long time. Further, the dollar value of its backlog increased 17% to $792 million, and its average home price in the backlog increased 10% to $423,000.
Thereby, MDC is experiencing a solid quarter with increased prices and enhanced homes backlog coupled with superior backlog average home price and dollar value.
Conclusion
The trailing P/E and forward P/E ratios of 16.62 and 13.60 respectively indicate the solid cost-cutting efforts of the company. The PEG ratio of -2.43 represent no growth but decline. The revenue per share and diluted EPS of 34.19 and 1.57 respectively depicts healthy investor earnings. However, the quarterly revenue growth and quarterly earnings growth of -6.60% and -57.40% respectively signifies continued decline in shareholder earnings.
But, the current ratio of 9.12 suggests the robustness of the company’s balance sheet.
