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Top Homebuilder Stocks That Could Surge With the Recovery: NVR, Inc. (NVR), D.R. Horton, Inc. (DHI)

Published on March 8, 2013 at 9:24 am by The Motley Fool in News
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M.D.C. Holdings, Inc.  (NYSE:MDC)
MDC has a high P/E of 30.07, signalling that the stock is not likely to be undervalued with regards to current earnings, but trades at a more attractive forward P/E of 16.31. When factoring in growth estimates, the ratio also paints a brighter picture: the PEG is 1.07, one of the lowest in the group.
When looking at ratings, analysts seem to be neutral at best: The stock has an average recommendation of 3.00 (hold), and an average target price of $36.63, which is lower than current prices. If the stock were to move from its current price to the target price, it would represent a price drop of 4.83%. However, investors should bear in mind that the most recent analyst reports are more bullish. For example, on Feb. 5, analysts at Deutsche Bank gave the stock a ‘buy’ rating and a target price of $45.
MDC pays a dividend of $1/share, which works out to a yield of 2.60%, one of the highest in the industry. The company has paid a dividend to its shareholders since 1994.
The stock is 9.24% off its 52-week high of $42.41. It has gone up just 4.71% YTD, and it is far from its all-time highs of $85 (2005).
My take: MDC has reported impressive revenue growth, and solid growth in net income. Coupled with EPS growth, low PEG, and one of the highest dividends in the industry, MDC seems to be a good bet despite, like DHI, having weak operating cash flow.
P/E Fw P/E PEG Avg Rec Avg Price Target (% implied upside) Div Yield
NVR 28.83 13.35 2.31 2.60 $977.75 (-3.61%) N/A
DHI 7.95 15.31 1.59 2.40 $24.66 (+9.55%) 0.67%
MDC 30.07 16.31 1.07 3.00 $36.63 (-4.83%) 2.60%
Edge DHI NVR MDC DHI DHI MDC

The bottom line

All three stocks should benefit from a rise in residential housing demand, and a continuing home price recovery. Except for D.R. Horton, Inc. (NYSE:DHI), the stocks tend to have relatively high P/Es, but their forward ratios look more attractive, and the financials seem to paint a brighter picture. If the housing market continues its recovery, homebuilders will soon start benefiting, albeit probably after transaction-based stocks like banks, REITs, or mortgage insurers, which are already experiencing a rebirth. While there might be some obstacles along the way, the housing industry is poised to recover eventually, so the group in general should experience price surges. However, I would recommend sticking to MDC or D.R. Horton, Inc. (NYSE:DHI) over NVR, Inc. (NYSE:NVR), as their lower PEGs and dividends might sweeten the wait.

The article Top Homebuilder Stocks That Could Surge With the Recovery originally appeared on Fool.com and is written by  Alex Bastardas.

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