M/I Homes Posts Solid Quarter

Despite a low volume environment, M/I Homes

reported solid 3Q10 results with EPS of ($0.11) and an adjusted gross margin of 18.1%. Net orders were down ~21% y-o-y. However, investors seemed to give more weight to profitability metrics than net order growth as the stock outperformed its peer group by ~3.5%. MHO is in the process of refinancing its $200 mm notes due in 2012 as well. On the call, MHO said that through 3Q10 banks have attempted to put back 20 mortgages for defective underwriting. Approximately half of these inquiries have been resolved in MHO's favor. For the remaining half, MHO has either negotiated a settlement or is still contesting the banks' claims. MHO has reserved ~$1.2 mm for future putbacks which is only modestly higher than the YE09 reserve of ~$1.0 mm. Importantly, MHO has not seen an increase in attempted putbacks over the last few quarters. Citi has a Hold rating and a $13.50 PT on MHO MHO is trading lower at $10.63