M/I Homes Inc.MHO

Morningstar Rating

Stock Research and Analysis

by Eric Landry

M/I Homes has had a rough several years, as declines in its largest and most dominant market started well before most others. Yet if it can avoid liquidity issues, this no-moat builder's prospects may be better than some think.

When analyzing the prospects Read more

Bulls Say

M/I actually saw its orders increase 16% in the fourth quarter of 2008 due to strength in its Ohio, Indiana, and mid-Atlantic segments. This follows 10 straight quarters of declines. The increase may well be due to increased incentives, however, as gross margins fell to the lowest level in our records.

Of the company's 8,800 year-end lot count, 4,000 are finished. This means that as long as they reside in areas where the company plans to build, M/I will produce cash even at significantly reduced profitability levels. Read more

Bears Say

M/I discontinued its common and preferred dividends at the end of the second quarter of 2008 due to its falling below a liquidity requirement in its revolving credit agreement. This isn't such a big deal for common holders, but it means a lot to the owners of the noncumulative preferred shares. Those units yielded 9.75% of the face amount.

The latest amendment M/I received on its revolving credit agreement stipulates that any funds borrowed under the agreement will be secured. This is generally one of the last steps before a bank group refuses to negotiate any further amendments.

M/I Homes has taken more than $450 million in total pretax charges during the last nine quarters, the vast majority of which derived from inventory impairments and option write-offs. Add to this $109 million in deferred asset valuation allowances, and the company has destroyed more than half of its beginning 2006 book value. Read more

Strategy

Having operated in a defensive mode for three years, management remains focused on reducing debt and inventory. It has had some success, as inventories have been reduced to about $516 million, from a Read more

Management

Chairman and CEO Robert Schottenstein controls about 6.5% of the company's common stock, providing strong alignment with shareholders. He also was a large purchaser of the nonvoting preferred shares issued last spring. The nine-member board has five Read more

Profile

With 2,025 closings in 2008, M/I Homes is among the nation's top builders. Core markets include Ohio, Florida, Indiana, Washington, D.C., and North Carolina. M/I targets Read more

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