Ryland Group (RYL, Financial) announced first quarter of 2015 total revenue of $517.4 million, depicting a 5.7 percent expansion compared to $489.7 million of revenue during the same period last year. The growth in homebuilding revenues was primarily related to an increase in average closing price, which was about $343,000 in the first quarter of 2015 compared to $327,000 in the first quarter of 2014. Home closings remained constant at 1,463 units in the first quarter of 2015 as compared to 1,470 units during the same period last year.
A strong performance
Ryland reported 12.5 percent increase in net income to $26.5 million, or $0.47 per diluted share, during the first quarter of 2015 compared to $23.5 million, or $0.42 per diluted share declared during the same period last year.
The significant top line and bottom line growths for Ryland signify a major recovery in the global homebuilding market, allowing the key home developers to register improved profitability.
New orders grew 9.3 percent to 2,389 units in the first quarter of 2015, compared to 2,186 units during the same period last year. Moreover, backlog for the first quarter of 2015 grew 6.0 percent to 3,543 units over 3,342 units for the first quarter of 2014. Importantly, the dollar value of the company's backlog increased 11.5 percent from $1.1 billion in first quarter 2014 to $1.2 billion during first quarter of 2015.
The overall increase in number of new orders as well as the dollar values of these orders again signifies the improving global housing market conditions, significantly benefiting the homebuilding major. However, the rapid year-over-year decline in the housing gross profit margin is believed to be intensified by the rising concessions.
But Ryland’s cash, cash equivalents and marketable securities lowered and added to $377.4 million in the first quarter of 2015 as against $574.8 million in the fourth quarter of 2014. Net debt-to-capital ratio increased to 44.9% in first quarter of 2015 as against 43.3% in the fourth quarter of 2014.
Although, Ryland lowered its quarterly expenditures for the first quarter of 2015 and improved the number of active communities for the quarter. Still, the homebuilding major witnessed notable decline in cash for the quarter compared to the previous quarter with an expansion in net debt-to-capital ratio, signifying certain non-core expenses being executed by the company.
Improving the product portfolio to tap growth
Recently, Ryland Homes Orlando has opened two decorated models in Clear Lake Landings. Ryland Homes Tampa has announced plans to open three new model homes in Hillsborough County, Pasco and Pinellas communities. It has also declared plans to open a new community of Sawgrass. Going forward, Ryland Homes targets on introducing Pine Glen in Chalfont, Pa., and Jefferson Place in Frederick, Md. Crucially, Ryland has declared to pay a quarterly dividend of $0.03 per share on July 30, 2015, to common stockholders.
There’s an increase in average price for most of the homebuilding companies across all the operating regions allowed by higher-priced homes or market-propelled price expansions. The improvement in the overall economic growth in addition to betterment of the employment scenario accelerates homebuilding practices and allows a basis for robust housing demand. Moreover, homebuilders are expected to be extremely well-positioned to meet the currently elevated housing demand being well-equipped with superior-stocked supply of homes, plots and land. Therefore, looking at the healthy optimism of Homebuilders for healthy demand in the forthcoming spring selling season, investors can capitalize on this growth opportunity to capture and cash in on any near-term growth in the homebuilding sector.
The innovative launch of new housing communities by Ryland Group coupled with improvement in housing market demand and higher pricing is forecasted to benefit all the key homebuilders in a long-term including the Ryland Group, Inc.
Consensus expectations
Moody's Investors Service upgraded the Corporate Family Rating of Ryland Group to Ba3 from B1, reflecting notable enhancement in the company’s financial performance due to its reserved operating strategy and cautious balance sheet management along with the capability to capitalize upon cost-effective opportunities whilst implementing solid cost control techniques.
TheStreet Ratings team rates Ryland Group Inc. as a Buy with a ratings score of B, primarily driven by several key strengths which are believed to outweigh any of the company’s weaknesses. The company's strengths are viewed in several areas, like its robust stock price performance, healthy revenue growth, logical valuation levels, impressive earnings per share growth and solid net income growth. The only weakness of Ryland is its generally elevated debt management risk.
The positive outlook of key analysts towards the future growth prospects of Ryland Group, Inc. should encourage the investors to invest equity into the stock, going forward and achieve long-term profitability.
Conclusion
Overall, the investors are advised to invest in the Ryland Group, Inc. looking at the logical company valuations with the trailing P/E and forward P/E ratios of 13.34 and 10.12 respectively, which is better and lesser cost stock than the industry’s average P/E of 25.01. The PEG ratio of 1.12 depicts satisfactory company growth comparable to the industry’s average of 0.73. The profit margin of 6.76% seems satisfactory. However, Ryland needs to optimize its hugely debt-burdened balance sheet with significant total debt of $1.37 billion against weaker total cash of $355.14 million only, restricting the company to plan for future growth investments.
