3 Homebuilding Stocks Wall Street Predicts Will Rally by 25% or More

Despite high inflation and logistical disruptions, the homebuilding industry has remained red hot over the past few months. Investors’ interest in this space is evident in the SPDR S&P Homebuilders ETF’s (XHB) 7.4% returns over the past three months versus the…

SPDR S&P 500 Trust ETF’s (SPY) 4.2% returns.

And according to the NAHB/Wells Fargo Housing Market Index (HMI), builder sentiment in the market for newly-built single-family homes moved one point higher to 84 in December. According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development data, privately‐owned housing starts in November increased 11.8% year-over-year.

Homebuilding activities are expected to continue soaring as people spend more time at home amid new COVID-19-related restrictions and with them an extension of the work-from-home trend. Given this backdrop, Wall Street analysts expect homebuilding stocks PulteGroup, Inc. (PHM – Get Rating), Meritage Homes Corporation (MTH – Get Rating), and M.D.C. Holdings, Inc. (MDC – Get Rating) to rally more than 25% in price in the near term.

PulteGroup, Inc. (PHM – Get Rating)

Through its subsidiaries, PHM in Atlanta, Ga., is involved primarily in the home building business in the United States. The company acquires and develops land primarily for residential purposes, and constructs housing on such land.

On October 26, 2021, Ryan Marshall, PHM President and CEO said, “The housing industry continues to experience robust demand, but significant disruptions in the manufacture and supply of many building products are extending overall build cycles. We are working closely with our homebuyers and supply partners as we manage through today’s challenging conditions.”

PHM’s total revenues increased 17.7% year-over-year to $3.48 billion for the third quarter, ended September 30, 2021. Its home sale revenues came in at $3.32 billion, up 17.7% year-over-year. Its net income increased 14.2% year-over-year to $475.55 million, while its EPS came in at $1.82, up 18.2% year-over-year.

Analysts expect PHM’s revenue and EPS to grow 25.3% and 38.2%, respectively, year-over-year to $13.83 billion and $7.16for its fiscal 2021. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 8.9% in price to close Friday’s trading session at $52.98. Wall Street analysts expect the stock to hit $66.67 in the near term, which indicates a potential upside of 25.8%.

Meritage Homes Corporation (MTH – Get Rating)

MTH designs and builds single-family homes. The company operates through two segments: Homebuilding and Financial Services. Also, it offers title insurance and closing/settlement services to its homebuyers. MTH is headquartered in Scottsdale, Ariz. On August 24, MTH announced new, innovative enhancements that allow customers to choose a home buying path that aligns with their shopping style. Phillippe Lord, the company’s CEO, said, “We embrace innovation to improve and optimize the overall customer experience whether buyers choose to interact with us in-person, online or a mix of both, while ensuring 24/7 customer support.”

For the third quarter, ended September 30, 2021, MTH’s home closing revenue increased 10.4% year-over-year to $1.25 billion. The company’s net earnings came in at $200.75 million, representing an 84% year-over-year rise. In addition, its EPS was  $5.25, up 84.9% year-over-year.

MTH’s revenue is expected to be $6.08 billion in its fiscal 2022, representing an 18.2% year-over-year rise. The company’s EPS is expected to increase 74.8% year-over-year to $19.23 in the current year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Over the past nine months…

 

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