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Reasons for Taylor Morrison (TMHC) Solid Run on the Bourses

Taylor Morrison (TMHC) is banking on strategies to boost profitability and buyouts.

This story originally appeared on Zacks

Taylor Morrison Home Corporation TMHC looks promising, thanks to solid housing demand, improving geographical presence and strategic moves. Also, its focus on entry-level, first-time and move-up as well as luxury and active adult buyers bodes well.

Shares of the company — which currently carries a Zacks Rank #1 (Strong Buy) — have gained 29.1% in the past six months compared with the Zacks Building Products - Home Builders industry and Zacks Construction sector, and S&P 500 Index’s 14.7%, 12.2%, and 11.9% rally, respectively.

In addition to Taylor Morrison, Lennar Corporation LEN, Toll Brothers, Inc. TOL, and Meritage Homes Corporation MTH have also gained 14.4%, 23.6%, and 25%, respectively, year to date.

Taylor Morrison’s strategies to boost profitability through online channels bode well. Amid lingering uncertainty of the virus spread, the company has improved the digital retail experience with the recent launch of a first-of-its-kind digital community.

- Zacks

Zacks Investment ResearchImage Source: Zacks Investment Research

Let’s delve into the factors that might be driving investors’ sentiments further and aiding it to generate profits. You can see the complete list of today’s Zacks #1 Rank stocks here.

Favorable Housing Backdrop: The U.S. housing market is thriving despite risks from new COVID-19 variants and supply-related woes, with home sales rising at a record pace. November new and existing home sales data depicts the true picture of the same.

For the first nine months of 2021, Taylor Morrison reported revenue and earnings per share growth of 9.3% and 160.3% year over year, respectively. The results benefited from the solid execution of homebuilding and financial services businesses. Also, robust housing market conditions added to its bliss. Net sales order and backlog as of Sep 30, 2021 improved 24.8% and 63.2%, respectively.

Business Initiatives to Mitigate COVID-19 Impacts: Taylor Morrison has a trend of generating improved profits backed by various strategic initiatives. The company’s impressive surprise history is a testimony to the fact. Its earnings surpassed the Zacks Consensus Estimate in 19 of the trailing 22 quarters.

TMHC has been witnessing solid demand, especially from first-time buyers. Move-up buyers have represented the most consistent behavior since 2020 with record sales and low cancellations, followed by first-time buyers.

In addition to focusing on these buyers, the company has been building homes on a spec basis, which means a new property is finished or nearly completed before it is sold. Also, TMHC is fulfilling the needs of millennials and baby boomers who want affordable homes and highly-desirable communities. In fact, it has been witnessing good traction at lower price points.

Business Expansion: Acquisitions are an important part of Taylor Morrison’s growth strategy. The acquisition of William Lyon Homes — a national homebuilder and developer — enabled the company to expand its geographic scope in all three major markets, namely Washington, Oregon, and Nevada. Also, it acquired Urban Form Development, LLC, which primarily develops and constructs multi-use properties like combinations of commercial space, retail as well as multifamily units.

Upbeat View: For fourth-quarter 2021, Taylor Morrison expects home closings of 4,600 homes and average active community count to be in line with the third quarter (338). For fourth-quarter 2020, home closings and average active community count were 3,082 and 368, respectively. GAAP home closings gross margin is likely to be 21% for the quarter (indicating an increase from 18.3% reported in the prior-year period).

For 2021, home closings are expected to be 14,000 and average active community count is likely to be 335-340. Home closings and average active community count totaled 12,524 and 386, respectively, in 2020. GAAP home closings gross margin is anticipated in the low-20% range, while SG&A — as a percentage of home closings revenues — is projected in the mid-9% band. In 2020, it generated GAAP home closings gross margin of 16.6% and SG&A of 9.8%. The company expects to spend $2 billion on land and development compared with $1.4 billion in 2020.

TMHC has solid prospects, as is evident from the Zacks Consensus Estimate for fourth-quarter earnings of $2.13 per share, which indicates 195.8% year-over-year growth. Meanwhile, earnings estimates for 2021 and 2022 indicate 171.8% and 39.2% year-over-year growth, respectively. TMHC’s earnings surpassed analysts’ expectations in 19 of the trailing 22 quarters.

This luxury homebuilder has an impressive VGM Score of B, supported by a Value Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics.

A Brief Overview of the Other Stocks

Lennar, which currently carries a Zacks Rank #2 (Buy), is benefiting from effective cost control and focus on making its homebuilding platform more efficient, which in turn is resulting in higher operating leverage.

Lennar’s earnings for fiscal 2021 and 2022 are expected to rise 78.5% and 7.1% year over year, respectively.

Toll Brothers currently sports a Zacks Rank #1. This Horsham, PA-based luxury homebuilder builds single-family detached and attached home communities; master planned luxury residential resort-style golf communities; and urban low, mid, and high-rise communities, principally on the land it develops and improves. It has been benefiting from the strategy of broadening the product lines, price points and geographies.

Toll Brothers’ earnings for fiscal 2022 are expected to rise 33.2% year over year.

Meritage Homes currently carries a Zacks Rank #2. This Scottsdale, AZ-based prime homebuilder continues to gain from strategic initiatives, focus on entry-level LiVE.NOW homes and solid land position.

Meritage Homes’ earnings are expected to rise 22.2% year over year in 2022.

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Toll Brothers Inc. (TOL): Free Stock Analysis Report


Lennar Corporation (LEN): Free Stock Analysis Report


Meritage Homes Corporation (MTH): Free Stock Analysis Report


Taylor Morrison Home Corporation (TMHC): Free Stock Analysis Report


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