Amid the improving homebuilder sentiment and increasing new home sales, quality homebuilders stocks Sekisui House, Ltd. (SKHSY), Taylor Morrison Home Corporation (TMHC), and M/I Homes, Inc. (MHO) could be wise investments.
According to a survey, homebuilder sentiment in the United States reached a 10-month high in May as restricted housing supply spurred demand for new construction. Last month, the National Association of Home Builders/Wells Fargo Housing Market Index rose five points to 50.
Sales of new single-family homes in the United States reached a 13-month high in April. New home sales rose 4.1% to a seasonally adjusted annual rate of 683,000 units, the highest level since March 2022.
Moreover, the global construction market is expected to grow at a CAGR of 4.6% until 2031. The global construction industry is predicted to expand due to increased construction activity, green building adoption, mechanization, fast urbanization, population growth, and an increase in both residential and commercial buildings.
Furthermore, according to the Association of Professional Builders (APB), 58.1% of builders witnessed an increase in sales revenue in 2022, and 72% anticipate an increase in revenue in 2023.
Investors’ interest in homebuilders’ stocks is evident from the SPDR Homebuilders ETF’s (XHB) 11.6% returns over the past three months and 22.5% over the past six months.
Let us look deeper into the fundamentals of the featured stocks.
Sekisui House, Ltd. (SKHSY)
Based in Osaka, Japan, SKHSY designs, constructs, and contracts built-to-order detached houses. The company operates through Custom Detached Houses, Rental Housing, Architectural/Civil Engineering, Remodeling, Real Estate Management Fees, Houses for Sale, Condominiums, Urban Redevelopment, and Overseas segments. It has a market capitalization of $13.74 billion.
SKHSY’s forward EV/Sales multiple of 0.71 is 37.4% lower than the industry average of 1.14. Its forward Price/Sales multiple of 0.62 is 28.8% lower than the industry average of 0.87.
SKHSY’s trailing-12-month net income margin of 6.30% is 47.3% higher than the industry average of 4.28%. Its trailing-12-month ROTA of 6.14% is 68.5% higher than the industry average of 3.64%.
SKHSY’s total current assets came in at ¥2.13 trillion ($15.27 billion) for the period that ended April 30, 2023, compared to ¥2.09 trillion ($14.99 billion) for the period that ended January 31, 2023. Also, its total assets came in at ¥3.05 trillion ($21.81 billion), compared to ¥3.01 trillion ($21.53 billion) for the same period.
The consensus revenue estimate of $21.91 billion for the year ending January 2024 represents a 147.8% increase year-over-year. SKHSY’s shares have gained 16.4% over the past nine months to close the last trading session at $20.12.
SKHSY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SKHSY has a B for Value, Stability, Momentum, and Quality. It is ranked #4 out of 25 stocks in the B-rated Homebuilders industry. Click here for the additional POWR Ratings for Sentiment and Growth for SKHSY.
Taylor Morrison Home Corporation (TMHC)
TMHC, together with its subsidiaries, operates as a public homebuilder in the United States. The company designs, builds, and sells single and multi-family detached and attached homes; and develops lifestyle and master-planned communities.
TMHC’s forward EV/EBIT multiple of 7.19 is 44.7% lower than the industry average of 13. Its forward Price/Book multiple of 0.90 is 65.3% lower than the industry average of 2.60.
TMHC’s trailing-12-month levered FCF margin and ROCE margins of 17.67% and 24.03% are 406.5% and 136.2% higher than the industry averages of 3.49% and 10.18%, respectively.
For the fiscal first quarter that ended March 31, 2023, TMHC’s gross margin increased 1.6% year-over-year to $399.57 million. Also, its net income and EPS came in at $191.05 million and $1.74, representing 8.1% and 20.8% year-over-year increases, respectively.
Street expects TMHC’s EPS to come in at $6.75 for the year ending December 2023. It has surpassed EPS estimates in three out of four trailing quarters. Over the past nine months, the stock has gained 92.1% to close the last trading session at $46.86.
It’s no surprise that TMHC has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Value and Momentum and a B grade for Quality. It is ranked #3 in the same industry.
Beyond what is stated above, we’ve also rated TMHC for Growth, Value, and Sentiment. Get all TMHC ratings here.
M/I Homes, Inc. (MHO)
MHO builds single-family homes in Ohio, Indiana, Illinois, Minnesota, Michigan, Florida, Texas, North Carolina, and Tennessee. The company operates through Northern Homebuilding, Southern Homebuilding, and Financial Services segments. It also designs, constructs, markets, and sells single-family homes and attached townhomes under the M/I Homes brand name.
MHO’s forward EV/EBIT multiple of 5.32 is 59.1% lower than the industry average of 13. Its forward Price/Book multiple of 0.87 is 66.6% lower than the industry average of 2.60.
MHO’s trailing-12-month net income margin of 11.75% is 174.8% higher than the industry average of 4.28%. Its trailing-12-month ROCE of 25.82% is 153.8% higher than the industry average of 10.18%.
MHO’s total revenue increased 16.2% year-over-year to $1 billion in the first quarter that ended March 31, 2023. The company’s operating income was $134.59 million, up 9.5% year-over-year. Also, its adjusted EBITDA grew 8.7% from the prior-year period to $146.82 million.
In addition, the company’s net income increased 12.2% from the year-ago value to $193.07 million, and its EPS were $3.64, an increase of 15.2% year-over-year.
Analysts expect MHO’s revenue to increase 6.8% year-over-year to $3.91 billion for the year ending December 2024. Its EPS is expected to grow 9% year-over-year to $13.17 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained 81.5% over the past nine months to close the last trading session at $75.80.
MHO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #2 in the same industry. It has an A grade for Value, Sentiment, and Momentum. To see additional MHO’s ratings for Growth, Quality, and Stability, click here.
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SKHSY shares were trading at $19.46 per share on Thursday morning, down $0.67 (-3.31%). Year-to-date, SKHSY has gained 11.65%, versus a 12.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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