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On January 5, 2013, Zacks Investment Research upgraded Ryland Group, Inc. (RYL - Snapshot Report) to a Zacks #1 Rank (Strong Buy).

Why the Upgrade?

Ryland Group, Inc has been witnessing rising earnings estimates on the back of strong fiscal third-quarter 2012 results and recent acquisitions. Moreover, this well-known homebuilding and mortgage-finance company delivered positive earnings surprises in 2 of the last 3 quarters. The long-term expected earnings growth rate for this stock is 10.0%.     

Ryland Group reported fiscal third-quarter (ended September 30) results on October 24. Non-GAAP earnings per share came in at 21 cents, surpassing the Zacks Consensus Estimate of 17 cents by 23.5%. Earnings grew significantly from a loss of 9 cents in the prior-year quarter.

Double-digit growth in homebuilding revenues, expanded margins and the company’s cost control initiatives led to the strong earnings performance in the quarter. The company’s strong top-line growth was driven by over 35% growth in homebuilding revenue, number of homes closed and backlog. The company also witnessed 11.4% year-over-year growth in the number of active communities.

The Ryland Group believes in acquisitions to drive growth. The company recently acquired the Phoenix, Arizona operations and assets of Trend Homes. Previously, the company had acquired the assets of Timberstone Homes in Charlotte and Raleigh in July 2012.

The demand for new homes is increasing owing to expensive home rental market, affordable prices of homes, cost saving energy-efficient features of the new homes and low mortgage rates. More companies are investing in building new homes in order to meet the growing housing demand, which is resulting in declining inventory levels and growing prices.

The Zacks Consensus Estimate for fiscal 2012 increased 30% to 78 cents per share as most of the estimates were revised higher over the last 90 days. For fiscal 2013, the Zacks Consensus Estimate increased by 18% to $2.03 per share over the last 90 days.

Other Stocks to Consider

Other homebuilders with a favorable Zacks Rank and worth considering include MDC Holdings Inc. (MDC - Snapshot Report) with a Zacks #1 Rank (Strong Buy); Lennar Corporation (LEN - Analyst Report) and PulteGroup, Inc. (PHM - Analyst Report) both carrying a Zacks #2 Rank (Buy).

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