Argus Says It's Worth Holding On To MDC Holdings

Although shares of M.D.C. Holdings, Inc. MDC are currently trading near their fair value, the dividend yield of about 4.1 percent is higher than most peers and “provides incentive to hold the shares,” Argus’ Chris Graja said in a report. He maintained a Hold rating for the company, saying that EPS is expected to be backend loaded this year.

“We believe that MDC has the financial flexibility to opportunistically increase its supply of building lots and the expertise to improve the profitability of its existing land portfolio,” analyst Chris Graja commented. He added that the company had ended 1Q16 with about $750 million of liquidity, including cash, marketable securities, and available capacity on a credit facility.

Improving Market

Management has indicated a gradual gaining of momentum in the homebuilding market environment, backed by low unemployment, positive consumer confidence, wage growth, low interest rates and a limited inventory of new and existing homes on the market.

Constraints

Graja mentioned that MDC Holdings’ focus on build-to-order homes, rather than commencing construction without a buyer under contract, could limit the stock performance. He explained that the new strategy, which boosting profitability, has lengthened the time from contract to delivery.

“A secondary factor that is slowing conversion is that the company is seeing shortages of contractors in some markets,” the analyst added.