Here's Why You Should Add M/I Homes (MHO) Stock Right Now
Zacks Investment Research | Sep 04, 2017 08:54AM ET
July housing data indeed reflects a soft housing momentum for the time being. Nevertheless, the 2017 outlook for homebuilding seems to be solid given strong economic growth and labor market. The U.S. economy grew faster-than-anticipated in the second quarter (fastest pace in more than two years) and shows a significant jump from the first quarter’s lackluster 1.2% growth. The economy grew at an annual rate of 3% in the April-June period, the Commerce Department said in its second estimate on Aug 30. Along with this, solid homebuilders’ confidence (up 4 points mon-over-month to 68 in Aug) raises optimism about the entire construction sector.
The housing/homebuilding industry has been riding high on steady job and wage growth, historically low mortgage rates, rapidly increasing household formation and a limited supply of inventory. The positive momentum is evident from the robust Zacks Industry Rank (Top 16% out of more than 250 industries).
One such company cashing in on the positive momentum is M/I Homes, Inc. (NYSE:MHO) one of the nation's leading builders of single-family homes. Let us delve deeper into the other factors which make this Zacks Rank #2 (Buy) stock a lucrative pick.
Solid Growth Prospects
While M/I Homes has had a historical EPS growth rate of 45.5% compared with the industry average of 28.5%, investors should really focus on its projected growth. Here, the company is looking to grow at a rate of 37.1%, a lot higher than the industry average of 18%. Meanwhile, its revenues for the year are expected to increase 14.1%, higher than the industry’s 8% expected growth.
Estimates on the Upswing
We note that earnings estimates for M/I Homes have exhibited a good uptrend, reflecting optimism in the stock’s prospects. The Zacks Consensus Estimate for the company’s current-year earnings has moved up 0.7%, over the last 60 days. Also, next year’s earnings estimates have climbed 2.4% over the same time frame.
Valuation Looks Rational
M/I Homes has a Value Score of B, putting it into the top 40% of all stocks we cover from this perspective.
We find the price-to-book ratio as the best multiple for valuing homebuilders because of their asset-driven nature. M/I Homes currently has a trailing 12-month P/B ratio of 0.95 comparing favorably with the industry’s P/B ratio of 1.18. Hence, its lower-than-market positioning hints at more upside in the quarters ahead.
Also, the company has a trailing 12-months price-to-earnings (P/E) ratio of 9.6, while the industry’s average stands at 14.1. Moreover, its forward P/E ratio (compared with this year’s earnings) is at 8.1, compared with the industry’s 11.6. This indicates that a slightly more value-oriented path may be ahead for M/I Homes.
M/I Homes, Inc. PE Ratio (TTM)
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