CalAtlantic Group, Inc. — a leading homebuilding company in the United States — recently announced the opening of Trellis, a home community in North Phoenix, AZ.
Located in close proximity to major employment corridors and urban attractions, the home community will provide customers with a broad range of amenities like a heated private pool and spa. The opening of Trellis reflects the company’s relentless efforts toward increasing the home community count.
Investors should note that the company’s average community count in the second quarter of 2017 was down 2% from the prior year due to early closing of a few communities and delay in the opening of a few.
Markedly, the company expects its community count growth to be flat in 2017 due to delay in a few planned openings. However, the first half of 2018 is expected to see accelerated growth in community count. For 2018, the company expects average mid single-digit community count growth.
Additionally, as part of long-term growth plan, the company is focused on achieving double-digit top and bottom-line annual growth through expansion.
Although CalAtlantic Group is bullish about the significant opportunities in the company’s current geographic footprint, it is also focusing on building sales by foraying into markets with high demand. In fact, in the last reported quarter, the company expanded into top 20 new markets that offer ample opportunities. Owing to its sustainable prospects, the company has already made its way into Seattle and Salt Lake City markets.
However, CalAtlantic Group has been facing gross margin erosion in home sales. In the second quarter, gross margin fell 190 basis points to 20%. Further, the company lowered its 2017 gross margin outlook to the range of 20.5% to 21% from 20.3% to 20.8% owing to delay in certain deliverables and volatility stemming from the shutdown of a few communities. In order to overcome this, the company is trying to open more communities to drive revenues.
Notably, CalAtlantic Group’s shares have underperformed its industry year to date. The stock has gained 12% as compared with the industry’s rally of 41.6%.
The company also witnessed a downward revision in earnings estimates over the last 60 days. Current quarter and year estimates have gone down 3.6% and 11.4%, respectively, in the past two months. This reflects analysts’ pessimism over the stock.
Given a positive housing scenario, courtesy of higher demand, wage growth and rising rentals, CalAtlantic Group is positioned well for revenue growth as it progresses with strategic expansion and community home openings.
The company currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
A few better-ranked stocks in the industry are KB Home (KBH - Free Report) , Persimmon plc (PSMMY - Free Report) and Beazer Homes USA, Inc. (BZH - Free Report) .
While, Persimmon sports a Zacks Rank #1 (Strong Buy), KB Home and Beazer Homes carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Persimmon’s current-year earnings are projected to grow 18.3%.
Beazer Homes’ current-quarter earnings are estimated to increase 60.6%
Current-year earnings for KB Home are expected to increase 55.5%.
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