If the homebuilders are going down in a flurry of rising rates, it's not going to happen without a fight. M.D.C. Holdings
M.D.C. earned $2.43 a share in its June quarter, well above its $1.30 showing last year, on a 27% surge in revenues. The powerful showing is almost comical in nature, as just three weeks ago, the company had indicated that earnings per share would simply "exceed the high end of the range of analyst estimates of $1.91."
The company's bottom-line effort didn't just exceed projections -- it obliterated the target range. But that's how things have gone for M.D.C., as an appetite for new homes given the historically low mortgage rates has proven to be insatiable.
M.D.C. has rewarded its investors along the way. Income investors may note that the homebuilder has hiked its dividend five times over the past four years, nearly tripling the quarterly payout in the process.
But Wall Street has been jittery of late, sending the shares down by nearly 20% over the last four months. The company did plenty to alleviate many of the market's concerns last night. Are homebuyers shying away from new purchases? No. M.D.C. closed out its second quarter with its second-highest backlog in company history. Are the rising costs of building materials taking a bite? No. The company has been able to widen its gross margins by 430 basis points over the past year.
It's always possible that if rates continue to inch higher, then demand and pricing flexibility will dry up. The market seems to be pricing that in given the fact that many of the industry's stars -- such as M.D.C. -- are now fetching single-digit P/E multiples. Even as leading home manufacturers such as D.R. Horton
That uncertainty, if ultimately shellacked, is where the opportunity for further gains in the sector awaits.
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Longtime Fool contributor Rick Munarriz doesn't own any shiny red slippers, but he does believe that there is no place like home. He does not own shares in any of the companies mentioned in this story.