(This is an excerpt from an article I originally published on Seeking Alpha on May 9, 2013. Click here to read the entire piece.)
In November of last year, I identified M.D.C Holdings, Inc (MDC) as my second favorite pick for homebuilders for 2013. The main attraction was the sharp drop in short interest in 2012, the largest amongst my homebuilder universe. {snip} In this post, I review MDC’s last earnings report (May 2, 2013).
MDC has a diversified portfolio of locations which of course is not ideal during this early stage of the housing recovery when particular markets are extremely hot. {snip}
A look at MDC’s California markets provides at least one potential issue on margins. In the red hot San Francisco Bay Area, MDC is only selling in Fairfield and Mountain House, offering reasonably priced homes that are extremely long commutes from the core job centers. {snip}
It makes sense to temper my enthusiasm somewhat for MDC relative to other builders, but the upshot is that MDC could have more upside than other builders when the economic recovery broadens. MDC notes that it is raising prices in the majority of its communities, and the company is “…optimistic that [it] can continue to drive sequential improvements to…gross margin percentage for the balance of 2013.” MDC did not provide specific margin targets.
{snip}
Overall, MDC’s results were good but not amazing. The stock is underperforming its homebuilding peers for a reason, but it should play catch-up whenever the economy picks up steam. Here is a stock chart of MDC showing how it has made no progress this year.
Source: FreeStockCharts.com
(Source used: First quarter earnings presentation, annual report, and Seeking Alpha transcript of the conference call).
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on May 9, 2013. Click here to read the entire piece.)
Full disclosure: no position