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On Monday, BTIG maintained a Neutral rating on Century Communities (NYSE:CCS), a homebuilding and construction company. The firm's analysis followed a series of virtual meetings with the company's recently-appointed CFO, Scott Dixon, and BTIG clients. Despite the company's current efforts to move inventory, there are no immediate plans to reduce sales incentives in the second half of the year, as sales and traffic are exhibiting normal seasonal patterns.
Century Communities, which has not experienced significant resale competition affecting its selling pace except in southwest Florida, representing about 5% of its stores, remains optimistic about its structural financial health. The company anticipates gross margins can sustainably stay in the low 20% range, up from historical levels in the high teens, owing to enhanced scale. Additionally, Century Communities believes it can achieve over 30% growth in volumes without a substantial increase in fixed general and administrative expenses.
The company's strategic approach is likely to steer clear of major acquisitions, focusing instead on smaller deals that can improve scale. This comes as BTIG adjusts its earnings per share (EPS) estimates for Century Communities following the acquisition of Anglia Homes of Houston, which added 25 communities and 1,600 lots under control. The new forecasts set the EPS for 2024 at $10.20, up from $10.15, and for 2025 at $11.35, up from $11.10. The acquisition is expected to modestly boost orders, deliveries, and revenue, though it may slightly decrease gross margin due to purchase accounting.
The report also notes that Century Communities is in the process of rebuilding its land and store pipeline after a 40% reduction in its controlled lot count from the first quarter of 2022 to the first quarter of 2023, a move made in anticipation of a sharper economic downturn than actually occurred. This strategic reduction is likely to compress returns for a few quarters.
Lastly, BTIG expresses interest in the potential expansion of Century Complete, a segment of the business with double the return on assets compared to Century Communities' traditional operations. The expansion is dependent on the company's ability to increase assets to finished lots. BTIG will continue to monitor the company's progress on these fronts, maintaining a Neutral stance on Century Communities' stock for the time being.
In other recent news, Century Communities has experienced substantial growth in its financial performance. The company reported a significant 17% increase in home deliveries and a 24% surge in home sales revenues for Q2 2024. This growth is attributed to strong demand for affordable new homes and a strategic focus on affordability. The company also saw a 66% rise in adjusted earnings per diluted share year-over-year.
In relation to these developments, Century Communities received an updated price target from B.Riley, with the firm increasing it to $113 from $110, while maintaining a Buy rating on the stock. B.Riley expects strong demand for new homes to continue, supported by the successful use of rate buy-down incentives by Century Communities and other homebuilders.
Additionally, the company reported a 20% growth in net new contracts compared to the same period last year and ended the quarter with a record community count of 266. A new stock repurchase program was approved, and Scott Dixon was promoted to CFO.
Despite these positive developments, Century Communities' financial services revenues remained flat year-over-year, with profitability declining due to increased costs and lower gain on sale.
InvestingPro Insights
In light of the recent analysis by BTIG, current data from InvestingPro provides additional context for investors considering Century Communities (NYSE:CCS). With a market capitalization of $2.89 billion and a P/E ratio standing at 9.12, the company presents a value that is in line with industry standards. Notably, the P/E ratio has slightly adjusted to 8.93 when considering the last twelve months as of Q2 2024, reflecting a modest change in valuation. The revenue growth for the same period shows a steady increase of 4.14%, indicating a solid trajectory in the company's earnings potential.
InvestingPro Tips highlight that Century Communities has raised its dividend for three consecutive years, signaling confidence in its financial stability and commitment to shareholder returns. Additionally, three analysts have revised their earnings upwards for the upcoming period, suggesting a positive outlook on the company's performance. For investors seeking more detailed analysis, InvestingPro offers additional tips on Century Communities, which can be found at https://www.investing.com/pro/CCS.
With a strong return over the last five years and a dividend growth of 13.04% in the last twelve months as of Q2 2024, Century Communities appears to be maintaining its promise of structural financial health. These metrics, along with a robust gross profit margin of 22.79%, bolster the company's outlook and may offer a compelling narrative for investors looking beyond the neutral rating given by BTIG.
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