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Coverage Initiation: Taylor Morrison Home Corporation
Value Line has initiated coverage of Taylor Morrison Home Corporation (TMHC) in its flagship product, The Value Line Investment Survey. The company’s principal business is residential homebuilding and the development of lifestyle communities throughout the United States, with operations focused in Arizona, California, Colorado, Florida, and Texas. Taylor Morrison’s product lines feature entry-level, move-up, and luxury homes. In addition, it conducts business under the Monarch brand name, which was founded in 1918, began operations in the province of Ontario in 1957, and is one of the oldest names in Canadian homebuilding. This unit focuses on high-rise and single family home residential construction in Ontario, Canada. Taylor Morrison and Monarch are the general contractors for all of their projects and retain subcontractors for home construction and site development. What’s more, Taylor Morrison offers mortgage operations to its customers in the U.S. via its mortgage brokerage subsidiary and title examination units.
The housing industry in the United States is fragmented and highly competitive. While Taylor Morrison remains a sizable homebuilder in the U.S., its national market share represented less than 5% of new home sales in 2012. In each of the company’s local markets, there are numerous national, regional, and local homebuilders with whom it competes. Generally speaking, Taylor Morrison squares off against companies such as DR Horton, Inc. (DHI), Lennar Corporation (LEN), and PulteGroup, Inc. (PHM). Additionally, new home sales traditionally represent less than 15% of overall U.S. home sales (new and existing homes). Therefore, THMC also faces competition from sales of existing house inventory, and from providers of housing units for sale or to rent (including apartment operators). Moreover, the conversion of apartments to condominiums offers an alternative to traditional housing and manufactured housing. Therefore, the company goes head-to-head primarily on the basis of location, price, quality, reputation, design, community amenities, and its customers' overall sales and homeownership experiences.
Looking ahead, Taylor Morrison appears poised to register solid top- and bottom-line advances. North of the border, the company records roughly one-quarter of its annual sales. Thus, it ought to capitalize on a firmer Canadian housing market over future quarters. Furthermore, its new home sales have soared over the past 12 months. In addition, the homebuilder’s fundamentals are supported by widening margins, an ample land supply (third largest among publicly traded homebuilders, at just over nine years), and reasonable debt leverage. However, this does not mean TMHC will not face a number of considerable challenges ahead. Despite an aggressive ramp-up in active communities, overall order growth has slowed considerably of late. Also, Taylor Morrison anticipates higher labor and material costs going forward, which would weigh on profits.
All told, subscribers interested in this homebuilder are advised to consult Value Line’s quarterly reports for Taylor Morrison Home Corporation, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.