M/I Homes Inc. unterbewertet?

Guckt Euch mal die Entwicklung der Kennzahlen von M/I Homes (US55305B1017) an und dann sagt mir, dass ein 2020er KGV von 7,4 angemessen ist.

MK ist bei $1,5 Mrd.
Umsatzwachstum jährlich 10-20%.
Gewinn zuletzt in 2020 fast verdoppelt.

Ich denke, wenn der US Immobilienmarkt nicht ins Wanken gerät, ist hier noch einiges drin.

 

Ausführlicher englischsprachiger Artikel zum US housing Market am Beispiel von M/I Homes
(seekingalpha)

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   With earnings yields of 15% for Pulte Homes and 23% for M/I Homes, these stocks trade like 30-50% EPS declines are around the corner.
   Homebuilders are at risk to a decline in new home demand from slowing population growth, but I see a number of offsets.
   Homebuilders are also at risk of excess competition trying to grab growth, a risk I will be watching over the next year.
   Net/net, I expect flat EPS over the next five years, making Pulte (PHM) and M/I (MHO) cheap despite the risks.


Pulte Homes just reported Q3 EPS of $1.82 while M/I Homes came in at $3.27 operating EPS. Based on their current stock prices, their “earnings yields” – annualized EPS dividend by the stock price – are 15% and 23%, respectively. That’s right, 15% and 23%.

Now, bonds don’t trade at 15% (23% is even rarer) with expectations for a growing interest payment. We will be very happy if the bonds keep making the current payment. The analysis is all about the risks of non-payment. So it is with Pulte, M/I and their peer homebuilders. If they can keep earning anywhere near their current levels, they are excellent buys. I believe they can keep EPS flat over at least the next five years. So they are, well, excellent buys.
Third quarter earnings – Great even with one hand tied behind their backs

It is well known that homebuilders have supply constraint challenges today, due to shortages of labor and supplies. As a result, homebuilders are having delays in completing construction and have restricted new sales until they are confident that they deliver on their promises. Despite these restrictions, Pulte’s Q3 EPS rose 36% from a strong result a year ago, and M/I was up 30%. The strength of their current results is clear when looking at how much cash flow they earned from each home sale.

Sources: Pulte and M/I financial reports

Despite their cost pressures and diseconomies of scale due to sales restrictions, their profit margins are at cyclical and possibly historic highs.

So why are investors so worried?
The demand worry – Are home sales in a bubble?

The short-term worry can be summarized in one quote:

   “The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index…reported a 19.8% annual gain in August.”

A 20% increase in home prices? That sure sounds bubbly. And most of us remember that the last home price bubble back in the early '00s ended in a painful bust.

The long-term demand worry is best articulated by housing research firm Zelman & Associates:

   “Dennis McGill, director of research at Zelman & Associates, said that the current supply of homes for sale is not indicative of the overall need to build more houses. Demand is strong right now because of an unusual emotional surge driven by the pandemic. Demographics, which are a better measure of housing demand historically, do not support more construction. ‘There is a downward trajectory of population growth, household formation as well, that’s really going to undermine the need for what’s built,’ said McGill.”

The downward trajectory of population growth is clear from this picture.

Source: Bureau of Economic Statistics

The causes for the population growth slide are low birth rates and now restrictions on immigration. The U.S. population could be in decline within a decade according to Zelman. Homes are built partly to replace obsolete housing but mostly to shelter new households. Fewer new people, fewer new homes needed, which is obviously bad for homebuilders.

So why am I still bullish on Pulte and M/I? Because I believe there are several counter-trends which should keep new home demand roughly stable for the next five years.

A current housing shortage. The Census Bureau’s latest quarterly report says that only 0.9% of single-family homes are vacant and only 6.2% of apartments. The combined 2.6% vacancy rate is the lowest since the late 1970s. For the U.S. to reach a historically average vacancy rate, about 1½ million housing units need to be built.

Second home demand, from two sources. One is from the surge in American net worth. It rose from $104 trillion at the end of 2018 to $144 trillion in June of this year, according to the Federal Reserve. Some of that new wealth is going into second homes. And as the Baby Boomers enter their retirement years, some are going to add a retirement home to their primary home.

Remote work demand. If I can work from anywhere now, why not make that “anywhere” where I can afford a better lifestyle? While this trend doesn’t increase total housing demand, it creates new demand where there isn’t enough supply at present.

Easier lending standards. Mortgage lending standards have been quite tight since 2008. That fact almost certainly contributed to weak homebuilding activity and falling homeownership and vacancy rates. But I believe the stars are aligning for a material loosening of underwriting standards:

   Banks are holding a record $7 trillion of deposits in excess of loans.
   The mortgage banking industry expanded substantially to handle the record refinancing boom of '20/'21. But the refi boom is fading fast while the mortgage bankers got hooked on growth. They almost certainly are eager to loosen underwriting standards to generate more business.
   Investors are desperate for yield. Junk bonds and other risky debt is in high demand. Why not junk mortgages?

While the current homeownership rate of 65.4% is about average, it has been rising recently. A one percentage point increase adds demand for another 1.4 million single-family homes.

Immigration policy may loosen. From the October 27, 2021 New York Times:

   “Hundreds of thousands of foreign workers have gone missing from the labor market as the global coronavirus pandemic drags on, leaving holes in white-collar professions…”

If the current labor shortage persists, the U.S. government may ease immigration restrictions, which adds to population growth and housing demand.

Net/net, I believe that single-family housing starts should remain flat with the past two years at 1.1 million a year for the next five years.
The supply worry – Chasing non-existent growth

At present, the level of competition between homebuilders is wholesome. That can be seen in two figures:

   Price increases. Over the past year, the U.S. average new home sale price rose by 18%. While lower interest rates clearly helped, the sharp increase says that price competition was restrained.
   Returns on equity (ROE). This past Q3, both Pulte and M/I generated 27% ROEs, excellent returns for any capital-intensive business. Again, a sign that competition at present isn’t excessive.

But are the builders getting too excited that we are truly in the midst of a housing boom? That is the main worry of Zelman & Associates. I agree there is a reason to worry. Recall that I expect flat new home sales over the next 5 years. A rational builder should therefore keep its land position relatively flat. But looking at building lots under control (owned or optioned), Pulte is up 41% since the beginning of 2020 and M/I is up 9%, and announced that it is entering the Nashville market. These growth efforts are important to watch carefully. Too much more land purchases and I will pull the plug on these stocks.
Flat earnings for the next 5 years is likely

Here is my earnings model for M/I Homes for this year and 2025:

Source: M/I Homes financial statements

I believe my assumptions are reasonably conservative:

U.S. housing starts of 1.1 million in '25, a bit below this year. See the “demand” section above.

Home price increases of only 2% a year from the $440,000 realized during Q3.

Gross profit margin falling from 24.0% this Q3 to 21.5% by '25, modestly above M/I’s long-term average. I think this is a conservative assumption considering that most of the land M/I will build on for the next four years was bought before the run-up in home prices that began last year.

Operating expenses as a percent of sales should rise as home sales stabilize.

Financial services income – money earned from arranging mortgage financing for their customers – should get squeezed by excess mortgage banker price competition.

Net/net, I forecast net income to be 15% lower in '25 than this year. But…

…Active share repurchases should reduce M/I’s share count by 20%. I assume M/I will stabilize its land position in the face of flat sales. If so, its earnings will be essentially all free cash flow. Since M/I’s debt ratios are already conservative, the free cash should be returned to shareholders. So…

…EPS in '25 should be about the same as this year.

I won't go over the details, but here's the same table for Pulte:

Source: Pulte Home financial reports
Summing up - The homebuilder stocks are worth the risk

Pulte and M/I’s stock prices are ridiculously cheap based on their earnings yields – 15% for Pulte, 23% for M/I. Investors have clearly priced in 30-50% EPS declines. Yes, that is possible, but I don’t believe it is probable; the likely case to me is flat EPS.

Next year should be a critical test of the business strategies for Pulte and M/I. If they start actively buying back shares, the stocks are going a lot higher. If they roll their strong '22 earnings into more lots, the risks increase and I’m gone.

This article was written by
Gary J. Gordon