M.D.C. Holdings Inc.MDC

Morningstar Rating

Stock Research and Analysis

by Eric Landry

MDC Holdings is unique. The operating model with which this builder entered the downturn stressed minimizing land holdings and building smaller communities. The strategy was far less risky than the tact taken by most other large builders who piled more Read more

Bulls Say

Though earnings several years hence are anybody's guess, it's likely MDC will enjoy much stronger profit growth than almost any other builder once the market stabilizes. It will be building on cheaper land before just about anyone else, due to its small current land position, and enjoys the cash and flexibility to employ whatever model yields the best results.

MDC management is starting to hint that it may soon be engaged in more offensive maneuvers after nearly three years of primarily a defensive strategy. Management mentioned on its last conference call that "it is not reasonable to assume that we will conduct business the same way as we have historically." We take this to indicate that the company will likely be a valuable partner to those institutions owning significant amounts of land but without the expertise to profitably build homes on it.

MDC's $1.4 billion of cash at 2008 year-end is more than $400 million higher than its less than $1 billion of total debt. The company has nothing outstanding on its revolving credit agreement, and no term debt due until 2012.

MDC's $222 million of land and land under development at 2008 year end, the most risky portion of any homebuilder's inventory, is less than 21% of equity. If the entire amount were to be written down to zero (which it won't) the hit would amount to less than $5 per share. Read more

Bears Say

This year is going to be very difficult, regardless of financial strength. MDC's backlog stands at just 533 units, less than 10% of what it was in mid-2006. Sales pace is so slow that overhead costs are ballooning as a percent of revenue.

About 68% of MDC's closings are concentrated in California, Arizona, Nevada, and Florida--all areas that have been heavily affected by foreclosures. This indicates price pressure will prevalent for some time. Read more

Strategy

Largely past the stage of the cycle (and well ahead of competitors) requiring intense focus on balance sheet reduction, MDC management is now squarely focused upon strategies to make the company a much Read more

Management

MDC management deserves high marks for maneuvering the company through some very difficult conditions with comparatively less damage to shareholders than most competitors. The company now sits in a highly advantageous position, thanks to management's Read more

Profile

MDC Holdings is the holding company for Richmond American Homes, HomeAmerican Mortgage, American Home Insurance, and American Home Title and Escrow. About 97% of MDC's revenue Read more

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