M.D.C. Holdings Inc.

Aided by positive sentiments in the homebuilding sector, shares of M.D.C. Holdings Inc. (MDC - Snapshot Report) reached a new 52-week high of $33.29 per share on June 29, before closing at $32.67 per share. The optimism came from the National Association of Realtors’ pending home sales index, which jumped 5.9% to 101.1 in May and increased 13.3% from 89.2 in the year-ago period.

This residential construction stock has been gradually gaining traction since reporting positive first-quarter 2012 results, which included a 122.2% surprise. Shares of this Zacks #1 Rank (Strong Buy) stock have grown about 83.8% year-to-date.

First-Quarter 2012 Signals Growth

On May 3, M.D.C. Holdings reported fiscal first-quarter 2012 earnings per share of 4 cents, compared with the Zacks Consensus Estimate for a loss of 18 cents. The result also compared favorably with the prior-year quarter’s loss of 43 cents. The improvement in the first quarter was mainly attributed to a 13% rise in home sale revenues, a 28% decline in homebuilding selling, general and administrative expenses, and a 90.8% dip in interest expense.

Total revenue of $186.3 million comfortably surpassed the Zacks Consensus Estimate of $169 million, and grew 13.9% year over year.

New orders increased 51% to $1,063 homes. Order backlog at the end of the first quarter was 1,487 homes with an estimated sales value of $477 million, the highest since the second-quarter 2008.

M.D.C. Holdings has made significant progress over the last several quarters in implementing various initiatives to streamline its business, improve sales, reduce overhead costs and cut capital expenditures. Along with a strong balance sheet and liquidity position, these factors should help the company reach its profitability goal for the full-year 2012.

Estimates on the Upside

In the past 30 days, the Zacks Consensus Estimate for 2012 rose 2.3% to 45 cents per share, reflecting year-over-year growth of 135.6% on a reported 2011 loss per share of $1.27. The Zacks Consensus Estimate for 2013 is up 4.0% to $1.05 per share, depicting a 131.5% year-over-year rise.

Valuation Compelling

M.D.C. Holdings currently trades at a forward P/E of 72.2x, reflecting a 25.8% premium to the peer group average of 57.4x. Simultaneously, on a price to sales basis, shares are trading at a premium at 1.81x compared with 0.88x for the peer group. Given the company’s compelling fundamentals, the premium valuation is justified and well supported by its long-term estimated EPS growth rate of 15%. However, on a price-to-book basis, shares trade at 1.80x, reflecting a discount of 1.6%.

Charts Show Upward Trend

Over the last six months, shares of M.D.C. Holdings have been trending upward with slight pull backs from time to time, and is now trading close to its 52-week high. In fact, the stock has been consistently trading above its 200-day moving average since February 2, 2012. It has also remained above the 50-day moving average since June 14, 2012.

Volume is fairly strong, averaging roughly 1,193K daily. M.D.C. Holdings, which competes with KB Home (KBH) and DR Horton Inc. (DHI), has outperformed the S&P 500 over the last six months. The year-to-date return for the stock is roughly 83.8% compared with the S&P 500’s return of 6.7%.

Headquartered in Denver, Colorado, M.D.C. Holdings and its subsidiaries engage in homebuilding and financial services businesses in the U.S. The company’s homebuilding division has been designing and building new homes under the name "Richmond American Homes" for more than 35 years. The company’s financial services business engages in providing mortgage financing, insurance and title services, primarily for Richmond American homebuyers, through HomeAmerican Mortgage Corporation, American Home Insurance Agency Inc. and American Home Title & Escrow Company, respectively. The company, founded in 1972, has a current market cap of $1.57 billion.