M/I Homes: Riding The Housing Rebound With Strong Earnings And Growth Outlook

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M/I Homes benefit from robust earnings, strategic market positioning, and favorable seasonality trends.Trading at a significant discount to sector peers, M/I Homes offers an appealing entry point for ...

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Monty Rakusen/DigitalVision via Getty Images M/I Homes (NYSE:MHO) stock has been on a superb run of late as the U.S. homebuilding space starts picking up the pace again. Fueled by recent interest rate cuts, real estate stocks like M/I Homes have enjoyed eye-catching gains, and with further rate cuts expected ahead, the rally will likely continue. Moreover, the company recently delivered another stellar quarterly result, posting record top-and-bottom-line numbers alongside robust operational activity. Supported by realistic growth assumptions from my sensitivity analysis and an appealing technical setup, M/I Homes stock has plenty of room to climb. Also, with favorable seasonality trends in November and December, now is an opportune time to buy. Company Profile And Technical Setup MI Homes has established its position as a true juggernaut in the U.S. homebuilding space since 1976, involved in designing and constructing single-family homes and townhomes built for various buyers, including millennials, first-timers, and multi-generational families. Headquartered in Columbus, Ohio, the company operates through three primary segments including Northern Homebuilding, Southern Homebuilding, and Financial Services. The Southern division accounts for nearly 60% of its total sales, generating $2.4 billion, while its Northern division contributes 37.8%, or $1.5 billion. Complementing its core construction operations, M/I’s Financial Services segment is responsible for $93.8 million, offering mortgage lending and title insurance to streamline home-buying.   MI Homes Revenue By Business Segment (GuruFocus)Moreover, it boasts a market cap of $4.16 billion, employing over 1,600 people and constructing quality residences across Ohio, Indiana, Illinois, Michigan, Florida, Texas, North Carolina, and beyond. Also, with its end-to-end approach, from land acquisition and development to mortgage and title services, MI Homes has effectively positioned itself as a one-stop destination for homebuyers seeking efficiency and quality.   MI Homes Stock Chart (TrendSpider)From the chart above, we can see the stock has shown strong upward momentum, as shown in two major bullish moves over the past few months. The first rally spanned over 15 weeks and posted a robust 58.17% gain, driven by market anticipation of rate cuts and strong earnings results. This was followed by a second upward move, lasting 10 weeks, with MHO stock climbing another 26.67%. Currently trading at $150.23, MHO is positioned above a recent support level of $139.53, which has held firm despite the recent pullbacks. Additionally, this support level aligns with the 50-day EMA, underscoring its significance as a potential floor for the stock. If MHO can maintain its level, it could signify the continuation of a bullish trend, particularly if it can keep up the pace in the upcoming quarters. On the RSI front, the indicator points to an easing from overbought levels, underscoring a period of consolidation rather than an immediate drop. A successful hold above $139.53 could offer a base for the next bullish leg, with $160 as a near-term target. Q3 Earnings In Focus MI Homes capped off another superb quarter with record highs in home deliveries, revenue, and income, proving resilient despite the macro-economic headwinds, including heightened interest rates and hurricane impacts. Impressively, Q3 marked their third straight quarter of top- and bottom-line outperformance, with solid YOY expansion across the board. Additionally, the company’s well-rounded product lineup and focus on expanding its community footprint point to a healthy outlook for the upcoming year. The homebuilder posted an EPS of $5.10, topping estimates by 16 cents, complemented by an impressive $15.84 million sales beat.   M/I Homes Q3 and Year-to-Date Performance Overview (Author's Own Compilation)Diving into the specifics, the company’s homebuilding revenue for the quarter climbed 3% YOY to roughly $1.11 billion, spearheaded by a solid 10% increase in housing sales. Still, a sizeable portion of those gains were balanced out by the drop in land sales. However, a remarkable 27% rise in financial services revenue to $29.37 million underscores its diversified revenue streams and strength in the mortgage space. Furthermore, despite a 9% bump in the cost of sales, the company’s gross margin shot up a spectacular 10% to $309.44 million, highlighting its effective cost management and pricing strategy. Layered up with a 12% operating income boost to $181.93 million, the company’s net income rose to $145.43 million and a 6% gain in diluted EPS to $5.10. Zooming out to review the nine months ended in September, MI Homes continued its remarkable run, with total homebuilding sales rising to $3.21 billion, an 8% increase on a YOY basis. Housing sales grew by 8% to $3.19 billion, while land revenue contracted by 50% to $11.75 million. Financial services revenue remained stellar, rising by 18% to $87.69 million. Moreover, its gross margin for the nine months jumped by a notable 16% to $902.06 million, while operating income grew by 13% to $542.10 million. Furthermore, MI Homes ramped up its community footprint with a 7% YOY increase in average community count backed by a heartening 8% bump in home deliveries, hitting 2,271 units for the quarter and 6,653 year-to-date representing a 12% YOY rise. Additionally, the company’s average home closing price held steady at $489,000, underscoring robust pricing power and demand in a volatile market. Moreover, during the earnings call, CEO Bob Schottenstein discussed MI Homes' resilience in navigating the current market headwinds, throwing weight around its robust financial position with zero borrowings under its credit facility and a healthy debt-to-capital ratio of 20%. Also, it ended the quarter with $2.8 billion in equity and a powerful cash balance of $720 million. What’s even more tremendous is that the company has grown its cash balance by nearly 7,000% from 2015. Despite fluctuations in interest rates and disruptions from Hurricanes Helene and Milton, the company has seen encouraging signs in market demand, with traffic levels improving and October's performance exceeding expectations—setting a positive tone for Q4. Schottenstein expressed optimism for the upcoming spring selling season, even amidst market volatility and affordability pressures. To capture demand, MI Homes remains committed to strategic pricing across its diverse community portfolio, leveraging mortgage rate buy-downs and balancing its product offerings to appeal to both entry-level and move-up buyers. On top of that, Schottenstein talked about doubling down on affordable housing, with the company’s \"Smart Series\" now constituting a sizeable 20% of sales. The product line’s impact has evolved from surging demand from first-time and budget-conscious buyers, especially in booming markets like Florida and Texas. CEO Bob Schottenstein also highlighted that affordable townhomes in high-demand places such as Dallas and Orlando continue boosting sales and margins. Realtor.com’s October 2024 Housing Market Trends Report echoes this demand, noting a 34% rise in active listings throughout the South, with new listings up 2.9% while Tampa inventories rose an incredible 40.6% YOY. As inventory remains just below pre-pandemic levels, the demand for affordable housing in the South remains pivotal for M/I Home’s growth trajectory.   Quarterly EPS Surprises and Annual Estimates for M/I Homes (Seeking Alpha)From the snapshot above, we can see that MI Homes is set for promising expansion ahead, with an expected 34.61% YOY surge in its Q4 EPS and positive momentum heading into 2025, as shown by a 4.90% YOY EPS growth by Q3 2025. The stock’s valuation appears highly attractive, trading at just 7.30 times forward earnings based on 2025 year-end estimates of $20.76 compared to its TTM PE ratio of 8.14 times. Attractive At Current Levels MI Homes stock has been on an excellent trajectory, posting an impressive 30% gain over the past six months, comfortably beating the S&P 500’s 14% gain over the same timeframe. However, we’ve seen a correction in the stock over the past month, losing almost 13% of its value amidst a volatile market. Nonetheless, the stock has more upside potential, supported by attractive valuation metrics and a sensitivity analysis grounded in realistic assumptions.   MHO Stock Valuation Grades (Seeking Alpha)The snapshot shows that MI Homes stock is trading attractively based on a variety of metrics. It trades at 7.67 forward earnings, a significant 54.65% discount compared to the sector median of 16.92. Moreover, its EV/EBITDA sits at 6.54, roughly 42% lower than the sector median. Similarly, its price-to-book ratio is 1.47, offering a 31.20% discount relative to the sector’s 2.14 median. Moreover, in gauging the stock’s fair value across various FCF growth scenarios and discount rates, I conducted a DCF analysis, building a sensitivity table highlighting substantial upside potential for MI Homes stock. The analysis used a 10% FCF growth rate as a base case with a 12.4% discount rate in estimating potential fair values. The weighted-average-cost-of-capital (WACC) calculation incorporates an 81% equity-to-19% debt structure and a beta value of 1.82, underscoring the stock's volatility relative to the market. Keeping that in mind, here are the scenarios shown by the analysis.   Sensitivity Table (Authors Own Computation)Based on the analysis, we can see that MI Homes stock’s fair value is estimated at $179.51 based on a 10% FCF growth rate and a discount rate near its WACC of 12.4%. This represents a sizeable jump from its current stock price around the $150 mark. It is important to acknowledge, though, the stock’s rising WACC in recent years, peaking at 12.4% this year. As WACC increases, it becomes tough for companies to generate returns exceeding their cost of capital. Risks To The Thesis While M/I Homes is on an encouraging trajectory, multiple factors could weigh down the bullishness. Firstly, indecisiveness from the Federal Reserve, marked by shifts in their rate policy, could lead to an uncertain economic environment, impacting buyer confidence in the housing industry. Additionally, M/I’s exposure to the Southern U.S., though currently advantageous, could potentially become a liability on the back of economic setbacks or regulatory roadblocks. Also, M/I’s expansion into affordable housing, though appealing, heightens its competition with both new and established players, eating into its already meager margins. Finally, with a WACC, M/I Homes stock remains vulnerable to market volatility. The recent uptick in WACC underscores a growing hurdle in generating returns exceeding the company’s cost of capital. Takeaway On MI Homes stock  M/I Homes stock still has room to run, supported by healthy fundamentals, an appealing valuation, and its unique positioning in high-demand markets. With record-breaking quarterly numbers in Q3 and a diversified revenue model, the company is in an excellent position to sustain growth. Its attractive valuation metrics and end-to-end business model solidify its appeal. Moreover, favorable seasonality and technical indicators underscore strong near-term momentum, while the long-term growth prospects remain underpinned by growing community footprints and demand for affordable housing.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2480334041"}