Why You Should Add M/I Homes (MHO) to Your Portfolio Now

Companies in the homebuilding space have been enjoying good tidings of late given the positive fundamentals of the housing market. The positive momentum is evident from the robust Zacks Industry Rank (Top 15% out of more than 250 industries). In fact, the Zacks Building Building Residential/Commercial industry has outperformed the broader market on a year-to-date basis, as you can see below:

 

The housing/homebuilding industry has been riding high on steady job and wage growth,  affordable mortgage rates, rising rentals, rapidly increasing household formation and a limited supply of inventory. Meanwhile, the rise in mortgage rates seems to be having a minimal effect on the industry.

One such company cashing in on the positive momentum is M/I Homes, Inc. MHO -- one of the nation's leading builders of single-family homes. Let us delve deeper into the other factors which makes this Zacks Rank #1 (Strong Buy) stock a lucrative pick.

Stock Price Movement: M/I Homes’ shares have gained 41.4% in the last one year, compared to the Zacks categorized Building Residential/Commercial industry’s 16.4% rise. That said, we have noticed that M/I Homes has outperformed the industry in the 12-week and 52-week frame. The overall improvement in the U.S. economy along with the improving housing momentum is expected to drive results in 2017.

 

Earnings History & Growth: M/I Homes has put up a historical EPS growth rate (average trailing 12-month EPS growth rate over the last 3-5 years of actual earnings) of 44.6%, compared with the industry average of 18.9%. Moreover, the company’s earnings is looking to grow at a rate of 36.2% in 2017, while the Zacks categorized Building Residential/Commercial industry’s earnings are likely to grow 17.3%.

Valuation Looks Rational:  M/I Homes has a Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this perspective.

We find the price-to-book ratio as the best multiple for valuing homebuilders because of their asset-driven nature. M/I Homes currently has a trailing 12 month P/B ratio of 1.14, comparing favorably with the industry’s P/B ratio of 1.66. Hence, its lower-than-market positioning hints at more upside in the quarters ahead.

Also, the company has a trailing 12-months price-to-earnings (P/E) ratio of 11.65, while the industry’s average stands at 13.86. Moreover, its forward P/E ratio (price compared to this year’s earnings) is at 9.36. This indicates that a slightly more value-oriented path may be ahead for M/I Homes.

Estimate Revisions: Earnings estimates for the current quarter and year have also gone up by 17.5% and 17.3%, respectively, over the past 60 days. The upside in earnings estimate revisions shows unwavering confidence that analysts have in the company. You can see the consensus estimate trend and recent price action for the stock in the chart below:

KB Home Price and Consensus

 

KB Home Price and Consensus | KB Home Quote

Bottom Line

M/I Homes’ robust Zacks industry Rank and a solid Zacks Rank instill investor confidence. Add to this the positive estimate revisions and robust value metrics, and we believe that we have a solid investment option in M/I Homes.

Other Stocks to Consider

Other top-ranked stocks in the industry include Lyon William Homes WLH, Lennar Corporation LEN and KB Home KBH.

Lyon William sports a Zacks Rank #1 (Strong Buy). Full-year 2017 earnings for Lyon William are expected to increase 38.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lennar, a Zacks Rank #2 (Buy) stock, is expected to witness 7.5% growth in fiscal 2017 earnings.

KB Home, also a Zacks Rank #2 stock, is expected to witness 43.3% growth in fiscal 2017 earnings.

3 Stocks to Ride a 588% Revenue Explosion
                  
At Zacks, we're mostly focused on short-term profit cycles, but the hottest of all technology mega-trends is starting to take hold...

By last year, it was already generating $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for those who make the right trades early. See Zacks' Top 3 Stocks to Ride This Space >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Click for Free Lennar Corporation (LEN) Stock Analysis Report >>
 
Click for Free KB Home (KBH) Stock Analysis Report >>
 
Click for Free M/I Homes, Inc. (MHO) Stock Analysis Report >>
 
Click for Free Lyon William Homes (WLH) Stock Analysis Report >>
 
To read this article on Zacks.com click here.
 
Zacks Investment Research