Ryland Group, Inc. has been consistently maintaining Zacks Ranks of #1 (Strong Buy) or #2 (Buy) since Feb 2013. In fact, the company has not been downgraded to a Zacks Rank #4 (Sell) since Jul 2011.
Ryland Group is one of the largest homebuilders in the U.S, with operations in 14 states. Like other homebuilders such as Lennar Corporation (LEN - Analyst Report), PulteGroup Inc. (PHM - Analyst Report) and D.R. Horton, Inc. (DHI - Analyst Report), Ryland has been gaining momentum from the strong recovery of the U.S. housing market. Recent comments by Federal Reserve Chairman Ben Bernanke to keep interest rates low for sometime provided further momentum to the stock and the housing industry, in general.
Ryland’s Key Strengths
Ryland’s steady growth has been supported by its geographic diversity. The company’s focus on various markets helps it grow faster than some of its competitors and evade the headwinds of any particular market. In fact, the company operates in some of the most lucrative markets in the country, like southern California, Washington, D.C., Las Vegas and Charlotte.
In Jun 2013, the company acquired Dallas/Fort Worth operations and assets of LionsGate Homes. With the LionsGate acquisition, Ryland now owns 843 lots and homes for future sales. Ryland will also operate 17 active communities in the Dallas/Ft. Worth market that were previously owned by LionsGate. This is the third acquisition by RYL in the past 11 months. The other two purchases include assets of Timberstone Homes in Charlotte and Raleigh in Jul 2012 and Trend Homes in Phoenix in Dec 2012.
In addition, the company’s strong cash position helps it acquire attractive land deals. As of Mar 31, 2013, the company had cash, cash equivalents and marketable securities of $614.6 million. The company invested $92 million in land purchases and $46 million in land development. All these investments help the company maintain a healthy community count. The company’s solid land position, thus, places it well to meet growing demand during the upturn, thus giving it a competitive edge over peers who are facing land availability constraints. In fact, in Jun 2013, the company unveiled several new homes in Maryland, Atlanta and Austin.
Ryland has also benefitted from its focus on move up buyers as their numbers have increased over the last two years. In fact, move up buyers constitute 49% of the company’s business and management expects the number to increase in the near term. Move-up buyers are less price sensitive thus boosting margins.
Solid First Quarter Results
On Apr 24, Ryland reported first quarter 2013 results. Ryland’s first quarter 2013 earnings of 43 cents per share beat the Zacks Consensus estimate of 30 cents by 43%. Earnings increased significantly from the year-ago loss of 7 cents. Ryland’s revenues in the quarter surged 73.6% year over year on the back of an increase in homebuilding revenues. The company witnessed high single digit increase in average closing price. More importantly, new orders and backlog recorded high double digit increase in the quarter.
In fact, Ryland has beaten the Zacks Consensus Estimate in all the past four quarters with an impressive average earnings surprise of 26.29%. We believe its significant land positions, broad geographic and product diversity and strong capital position will enable it to take maximum advantage of the housing recovery.