Back to top

Image: Bigstock

Here's Why You Should Buy Tri Pointe Homes (TPH) Stock Now

Read MoreHide Full Article

Tri Pointe Homes, Inc. (TPH - Free Report) has been gaining strength from robust performance backed by a favorable housing backdrop, acquisition strategy and focus on higher operating leverage. Also, strong backlog level and increased net new home orders are added positives.

The company’s shares have gained 15.7% year to date, steadily outperforming the Zacks Building Products - Home Builders industry’s 13.1% rally. The solid performance can be attributed to an impressive earnings surprise trend and solid industry backdrop. Tri Pointe Homes’ earnings surpassed the Zacks Consensus Estimate in 13 of the trailing 14 quarters.

Also, earnings estimates for fiscal 2021 and 2022 have moved up 1% and 2%, respectively, over the past 30 days. The positive trend signifies bullish analyst sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Major Growth Drivers

Strong performance

Tri Pointe Homes, which has been continuously delivering strong performances over the last few quarters, has maintained growth momentum in the first quarter 2021. For first-quarter 2021, Tri Pointe Homes reported impressive results as earnings topped analysts’ expectation as well as improved significantly year over year. Tri Pointe Homes’ robust first-quarter 2021 results were backed by a strong backlog level, continuous rise in new home orders and regular strategic initiatives made by the company. Total home sale revenues for the reported quarter were $716.7 million, up 20% year over year. The company delivered 1,126 new homes during first-quarter 2021 compared to 958 homes in the year-ago quarter.

Robust Backlog

Tri Pointe Homes has a sizable backlog that points to solid revenue growth opportunities. The company ended first-quarter 2021 with a backlog of 3,825 homes (up 56% year over year) and potential housing revenues of $2.5 billion (up 51%). The company is well positioned to deliver solid results for 2021, given strong backlog and current housing fundamentals.

Significant Operating Leverage

The company is focused on achieving operating leverage by controlling overhead costs in order to drive the bottom line as well as cash flow. In fact, during first-quarter 2021, SG&A, as a percentage of total revenues, improved 250 basis points year over year. Going forward, the company is optimistic about creating more unified methods that lead to operational and cost efficiencies for the company over time.

Improved Housing Market

The continuous decrease in mortgage rates is driving the U.S. residential market of late. The robust demand for homes has been a boon for Tri Pointe Homes and companies like KB Home (KBH - Free Report) , Toll Brothers, Inc. (TOL - Free Report) and Lennar Corporation (LEN - Free Report) in the same industry, each currently carrying a Zacks Rank #1. As a result of the strong housing market fundamentals, Tri Pointe Homes is optimistic about a strong performance in 2021.

Zacks Investment Research
Image Source: Zacks Investment Research

Solid Land-Acquisition Strategy

Tri Pointe Homes is consistently focused on land acquisition and development activities, which are critical for community count as well as top-line growth.

Also, the company made further efforts to acquire land in a more capital-efficient manner. During first-quarter 2021, the company increased its lots controlled via option agreement to 38%, representing the highest option lot percentage in the company's history. Currently, the company controls or owns nearly 37,000 lots of land. Also, Tri Pointe Homes is partnering with different intermediaries to accelerate the purchase and development of land investment in a much risk-averse way.

Upbeat View

Encouragingly, during the first-quarter 2021 earnings call, the company raised its guidance for 2021 based on the strong first-quarter performance and current trends. The company now expects deliveries between 6,000 and 6,300 homes, up from the previous projection of 5,700 to 6,000 homes. Also, the company raised its average selling price expectation to $620,000-$630,000 compared to $600,0000-$610,000 projected earlier. Gross margin is likely to increase 22-23% compared with the previously mentioned 21-22%. SG&A margin is now anticipated to be 9.8-10.3% versus 10-10.5% stated earlier.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Toll Brothers Inc. (TOL) - free report >>

KB Home (KBH) - free report >>

Lennar Corporation (LEN) - free report >>

Tri Pointe Homes Inc. (TPH) - free report >>