2 Homebuilding stocks that Wall Street predicts will rise 50% or more
The residential construction industry is expected to experience significant growth this year in a context of sustained demand and tight housing inventories. Following Russia’s attack on Ukraine, mortgage rates are falling. It should increase the purchasing power of buyers.
According to a CoreLogic report, house price growth in January was the highest in 45 years. This trend will likely continue, thanks to lower mortgage rates and increased seasonal demand this spring. The bullish sentiment surrounding the homebuilding industry is evident in the Hoya Capital Housing ETFs (HOMZ) 9.3% increase over last year.
Given these factors, Wall Street analysts expect quality residential construction stocks KB Home (KBH) and MDC Holdings, Inc. (MDC) to increase its prices in the coming months.
Knowledge Base Home (KBH)
KBH, based in Los Angeles, is an American home construction company. It operates through four segments: West Coast; South West; Central; and Southeast. The company builds and sells various houses and offers financial services. It has operations in Arizona, California, Colorado, Florida, North Carolina, Nevada, Texas and Washington.
On March 5, 2022, KBH opened Lotus at the Seasons, a new single-family home community in Chino, California. The openness is expected to boost the company’s revenue streams.
On February 25, 2022, KBH announced the opening of Allegro, a new single-family home community in Elk Grove, California, and Bartlett and Cortland in Mason Trails, new home communities located in Roseville, California. These openings could expand society. customers and increase home sales.
During the fourth quarter of its fiscal 2021, which ended November 30, 2021, KBH’s total revenue increased 40.3% year-on-year to $1.68 billion. KBH’s total pre-tax income increased 77.6% year over year to $223.93 million. And the company’s net profit rose 64.2% from the same period last year to $174.23 million. Earnings per share for KBH rose 70.5% year-on-year to $1.91.
The consensus revenue estimate of $1.48 billion for the first quarter of its fiscal year 2022, ending February 28, 2022, represents 30% year-over-year growth. The consensus EPS estimate of $1.54 for the quarter to report represents 50.9% year-over-year growth. The company has an impressive track record of earnings surprises; it has exceeded consensus EPS estimates in three of the last four quarters.
KBH shares are down 17.2% since the start of the year. However, the 12-month median price target of $59.60 indicates a 60.8% upside potential from yesterday’s closing price of $37.06. Of the 11 Wall Street analysts who rated KBH, nine rated it Buy, one rated it Hold, while one rated it Sell. Price targets range from a low of $38.00 to a high of $73.00.
MDC Holdings, Inc. (MDC)
MDC in Denver, Colorado is in the homebuilding and financial services sectors. The Company’s homebuilding activities include the purchase of finished or development land for construction and the sale of single family detached homes to buyers under the Richmond American Homes name. MDC’s financial services business includes mortgages, insurance products and title agency services.
This month, Richmond American Homes of Texas, Inc., a subsidiary of MDC, announced that Seasons at Carillon in the Austin area had opened. This introduction of a new community should boost the company’s sales.
MDC’s home sales revenue increased 21.5% year-over-year to $1.44 billion in the fourth quarter of fiscal 2021, ended December 31, 2021. Its gross profit home sales rose 29.5% year over year to $336.58 million. MDC’s pre-income tax profit rose 22.1% year-over-year to $209.15 million. And the company’s net profit rose 10.3% year-over-year to $162.66 million. Its earnings per share rose 8.9% year over year to $2.21.
Analysts expect MDC’s revenue for the first quarter of its fiscal year 2022, ending March 31, 2022, to be $1.22 billion, a 12.5% increase from a year to year. The Street expects the company’s current quarter EPS to be $1.90, representing a 26.1% year-over-year increase. The company has an impressive track record of earnings surprises; it has exceeded consensus EPS estimates in three of the last four quarters.
Over the past year, MDC stock has fallen 23.4% in price. However, the 12-month median price target of $65.00 indicates a 54.7% upside potential from yesterday’s closing price of $42.01. Of the three Wall Street analysts who rated MDC, one rated it Buy, while two rated it Hold. Price targets range from a low of $56.00 to a high of $73.00.
Shares of KBH were trading at $38.55 per share on Tuesday afternoon, up $1.49 (+4.02%). Year-to-date, KBH is down -13.50%, compared to a -10.65% rise in the benchmark S&P 500 over the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using its fundamental approach to stock analysis, Mangeet seeks to help retail investors understand the underlying factors before making investment decisions. Continued…