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On Wednesday, Seaport Global Securities initiated coverage on M/I Homes (NYSE:MHO) stock with a Neutral rating. The homebuilder, known for its expansion from the Midwest to Texas, Florida, and the Carolinas, now sees these areas contributing to 60% of its sales and EBIT.
The company has notably achieved record gross margins in the second quarter of 2024, reaching 27.3%, an increase from 27.0% in the same quarter of 2022, excluding financial services. This margin was accomplished in spite of the use of incentives and a lower year-over-year average selling price (ASP).
M/I Homes' affordable Smart Series, which accounts for more than half of its sales, has been a significant factor in achieving these margins. The company's valuation stands at 1.5 times its fiscal year 2024 book value, which is close to its peers.
This valuation comes despite M/I Homes exhibiting superior returns on equity and inventory, with figures of 21% and 23% respectively, compared to its peers' averages of 17% and 19%.
The company's financial performance, particularly in terms of gross margins and returns, sets it apart in the industry. M/I Homes' ability to maintain high margins, especially during a period of incentives and lower ASP, reflects a strong operational efficiency. The Smart Series has played a critical role in this success, appealing to a market segment that prioritizes affordability.
This valuation and performance data presents M/I Homes as an attractive proposition relative to its competitors. With a strong presence in key growth markets and a successful product line, the company demonstrates solid fundamentals. The Neutral rating by Seaport Global Securities acknowledges the company's recent achievements while also considering the broader market context.
Investors and market watchers will likely keep an eye on M/I Homes as it continues to navigate the housing market, balancing growth, margins, and valuation. The company's strategic positioning and product offerings will be key factors in its performance moving forward.
In other recent news, M/I Homes Inc. reported a record Q2 revenue of $1.1 billion, marking a significant increase in home closings by 12% year-over-year, with 2,224 homes closed.
The national homebuilder also highlighted substantial gross and pre-tax margins of 28% and 17.5% respectively. Despite a slowdown in demand and traffic during the quarter, the company observed an uptick in orders in June and maintains an optimistic outlook for 2024.
M/I Homes' balance sheet remains robust, boasting $2.7 billion of equity, $800 million in cash, and no borrowings. The company also owns approximately 23,000 lots, indicating a three-year supply. The homebuilder plans to open around 80 new stores this year, focusing on market share gains with low debt levels.
However, the company noted a slowdown in demand and an increase in inventory levels, particularly in Florida and Texas. Despite these challenges, M/I Homes reported a 29% increase in pre-tax income from its mortgage and title operations compared to the previous year. The company also achieved a reduction in build time by 10 days, reaching pre-COVID levels in most markets.
InvestingPro Insights
With M/I Homes (NYSE:MHO) demonstrating a notable financial performance and strategic market positioning, it's essential to consider real-time data and insights that could provide investors with an edge. According to InvestingPro data, M/I Homes boasts a solid market capitalization of $4.45 billion, reflecting its substantial presence in the housing market. The company's P/E ratio stands at 8.58, suggesting that its stock is trading at a value that is potentially attractive compared to its earnings. Notably, the stock has seen a significant price total return of 75.22% in the last year, indicating robust investor confidence and market performance.
InvestingPro Tips highlight that M/I Homes has achieved a high return over the last three months, with a 30.38% increase, and maintains a strong return over the last five years. These metrics underscore the company's growth trajectory and its ability to generate substantial returns for investors over various periods. Moreover, the company is expected to remain profitable this year, which could further solidify its position in the market.
For those interested in deeper analysis and additional insights, InvestingPro offers more tips on M/I Homes, providing a comprehensive understanding of the company's prospects. With a total of 12 InvestingPro Tips available, investors can access a broader range of expert guidance and data points to inform their investment decisions.
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