M.D.C. Beats on Home Closings

Homebuilder M.D.C. Holdings narrows its quarterly losses thanks to an increase in home closings, average selling price and home gross margin.
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M.D.C. Holdings

(MDC) - Get Report

narrowed its quarterly losses and beat expectations.

Quarterly losses came to $10.2 million, or 22 cents per share, compared with year-earlier losses of $32 million, or 69 cents per share.

Revenue of $225.7 million topped expectations for sales of $225.4 million, and represented an 11.1% improvement over year-earlier results.

Home closings increased by 10% to 722 homes though net new orders decreased 22% to 796 homes. M.D.C.'s backlog also declined by 8% to 1,188 homes at the end of the third quarter.

Better-than-expected results were attributed to an increase in home closings, average selling price and home gross margin.

Still, CEO Larry A. Mizel conceded that "the pace of our sales slowed, reflecting a continued low level of demand following the expiration of the

federal homebuyer tax credit in the second quarter."

Stifel Nicolaus analyst Michael Widner maintained a hold rating based on its "mixed valuation metrics and no near-term catalysts."

He noted that gross margins of 20.9% topped his expectations for 18%, offset by impairment charges and guidance for weaker fourth-quarter gross margins.

New orders were in line with the analyst's expectations but well below consensus, he said.

M.D.C.'s controlled lot count grew by 9% "but remains among the lightest of the group" at a 3.4-year supply.

"The valuation challenge we have for MDC is even if we assume it achieves the highest market share gains of the group going forward it still looks rich to the group on a normalized EPS basis," Widner noted.


home prices sliding again on all major indices, excess supply remaining a significant problem, and weakness in employment and the economy likely to mute household formation for at least another year we remain hard pressed to find drivers for a material improvement in housing in 2011. Still, with the stock trading just off multi-year lows and among the lowest exposure in the group to potential home price declines we see downside risk as fairly limited."

The Commerce Department said earlier this week that sales of

newly built homes rose 6.6% in September to a seasonally adjusted better-than-expected annual rate of 307,000.

September's new-home sales rate represented a 21.5% decline from year-earlier results.

The sharp year-over-year decline indicates there is no major rebound, according to Douglas S. Roberts, chief investment strategist for Channel Capital Research.

Roberts said the big month-over-month percentage jump in new-home sales -- as well as the

10% jump in existing-home sales reported earlier this week -- is due in part to home sales that went under contract over the summer but weren't closed until September. A number of those sales were likely families with children who wanted to move over the summer rather than have their kids switch schools mid-school year, he said.

The median sales price for new houses sold in September was $223,800, the Commerce Department report said, while the average selling price was $257,500. There were 204,000 new houses on the market at the end of August. It would take 8 months to work through that inventory at the current sales pace.

Roberts added that home inventories are likely even larger than the government was able to report, pointing to a "shadow inventory" of homes owners would like to sell but have kept off, or taken off, the market because they don't think the houses will sell.

The government data followed a reported earlier this week on existing-home sales.

The National Association of Realtors said that sales of previously-occupied homes rebounded 10% in September to a better-than-expected seasonally adjusted annual rate of 4.53 million units


M.D.C. shares added 2.8% in trading Friday. Elsewhere in

homebuilder stocks, the

SPDR S&P Homebuilders

(XHB) - Get Report

, an exchange-traded fund that tracks the homebuilder sector, gained 0.4%, while the

iShares Dow Jones US Home Construction

(ITB) - Get Report

ETF also added 0.2%.

-- Written by Miriam Marcus Reimer in New York.

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