MHO Opened a position in this home builder today at 26.40 avg today. The whole sector has been weak as investors focus on rising interest rates and how it might reduce demand for new homes. There is a shortage of homes in the US and the only way to make that up is to build new homes. Supply remains constrained as there is a shortage of skilled labor to build them as well. Virtually all builders reported strong increases in order backlogs yoy and they also say that demand remains very strong.
What I like about MHO:
It is one of the cheapest. It is now selling under book value. Their book value is also understated because their inventory of lots is carried at cost. Lot values keep rising so that asset is understated on their balance sheet.
Part of the reason that MHO is now near 52 week lows is that they missed estimates last Q (60c vs 66c estimate). Lost was the fact that they had a record number of new orders last quarter. Business is excellent.
Backlog of home orders was also well up at the end of last Q. Units in backlog were up 24% yoy, Dollar value of backlog was up 31%. They have some strong quarters coming, imo.
Concensus earnings estimate for this year is $4.05. That is a PE of only 6.5
MHO could also well be an attractive acquisition target for another builder and a good way for the acquirer to enter new regions without the costs and delays in starting new projects from scratch.
Lennar, an industry leader, comes out with earnings on Tuesday. I expect that their strong guidance could be the trigger that sparks a nice rally in the group.
AI
