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On Jul 2, Zacks Investment Research upgraded MDC Holdings Inc. to a Zacks Rank #1 (Strong Buy) on the back of growing momentum in the homebuilding market and a bright industry outlook for the year.

Why the Upgrade?

MDC Holdings is benefiting from the increase in demand for new homes, a fact supported by most of the housing data released recently.

The housing market has seen significant upside in new home construction activity, which is fueled by the increase in demand for new homes. Despite recent increase in mortgage rates, the housing market continues to witness momentum, indicating stable recovery.  Increased affordability due to higher rentals is boosting demand. Supply, however, remains limited due to low inventories, both for new and existing homes. Home prices have thus moved up sharply with increased market demand and limited supply.

Most homebuilders like MDC Holdings are thus, witnessing increasing traffic levels due to heightened consumer demand. Majority of the companies are witnessing significant growth in both volumes and average selling prices. MDC Holdings has recorded high double digit earnings surprises for the past seven quarters. Its average surprise for the past four quarters is 74.42%.

The strong housing momentum has also been reflected in MDC Holdings’ solid first quarter results (ended Mar 31) reported on May 2, 2013. Its first quarter fiscal 2013 adjusted earnings per share and total revenue beat the Zacks Consensus Estimate and the prior-year quarter levels by a wide margin. The beat was driven by high double digit year-over-year growth in new home orders, backlogs, home closings and margin expansion. The company was also able to increase average selling price of the homes sold by 9%.  

MDC Holdings is due to report its fiscal second quarter 2013 results in late Jul/early Aug. The Zacks Consensus Estimate at the moment is pegged at 55 cents per share. With a strong Zacks Rank and Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of 12.73%, MDC Holdings is likely to beat the Zacks Consensus Estimate in fiscal second quarter 2013. 

Other Stocks to Consider

Other stocks in the homebuilding sector that are performing well and deserve a mention include D. R. Horton Inc. , PulteGroup, Inc. , and Lennar Corporation , all carrying a Zacks Rank #1 (Strong Buy).
 

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