Tri Pointe Homes
– Snapshot Report
) is a Zacks Rank #1 (Strong Buy), and as such, we know that earnings estimates are moving higher. There are some macro events that are driving up estimates as well strong recent numbers from another home builder. Today, TPH is the Bull of the Day.Macro Tailwind
Interest rates have remained low for some time now. More recently the market is looking to the Fed to see when they will move interest rates higher. Recent reports suggest an extremely low likelihood of a rate increase in June and only a slightly higher chance for the September meeting.
The low interest rate environment has been a strong tailwind for the home building industry. The cheap money has allowed consumers to obtain the “American Dream” for some time, but with signals of the potential rate increases might push even more home buyers into the market to lock in lower rates.
Tri Pointe Homes designs, constructs, and sells single-family homes. The company also acquires and develops land. It operates a portfolio of six brands across eight states, including Maracay Homes in Arizona, Pardee Homes in California and Nevada, Quadrant Homes in Washington, Trendmaker Homes in Texas, TRI Pointe Homes in California and Colorado, and Winchester homes in Maryland and Virginia. The company is based in Irvine, California. TPH operates as a subsidiary of Weyerhaeuser NR Company.
TPH has a very strong earnings history, topping the Zacks Consensus Estimate for all seven reports the company has made. That streak is on the line on March 3, as the company reports again. If this report is anything like the most recent release, then investors will probably be willing to bet the house on more future success.
The most recent quarter was reported back in November of 2014. The company posted EPS of $0.22, topping the Zacks Consensus Estimate by $0.20 for a 1000% positive earnings surprise. The company also posted a very strong surprise on the top line as well, coming in with $478M in revenues, roughly $34M ahead of the Zacks Consensus Estimate.
The 2014 Zacks Consensus Estimate, which will be closed out with the earnings report next week has been moving higher over the last several months. Back in August of 2014, the Zacks Consensus Estimate was sitting at $0.33, but then moved higher to $0.47 in November and has crept higher to $0.55.
The 2015 number is another story. In August of 2014, the number was $1.29 and following the report in November the estimate dropped down to $1.27, which is where it remains right now.
TPH has a great valuation for a growth company. A trailing PE of 17.7x is just slightly higher than the 15.7x industry average, but more importantly the forward PE of 12.5x is below that of the 13.1x industry average. The price to book of 1.8x is also showing the stock trading at a discount to 1.9x industry average. Price to sales is a little skewed here and has TPH at 5.2x while the industry typically trades around 1-2x.
To get a better grasp as to why TPH trades at such a low valuation, I can only point to the net margin of 2.9% for TPH and the fact that the industry average is 5.2%. That said TPH is expected to see revenue grow 34%, well ahead of the 23% growth the industry is expecting. Moreover, TPH is slated to see EPS grow 130%, while the rest of the industry is looking at earnings growth of 25%.
Amid some mixed macro data for new home starts and new homes sales, we recently saw a very strong report from Toll Brothers. That company produced EPS of $0.44, a $0.14 beat of the Zacks Consensus Estimate. What caught my eye was the strong topline beat of about $80M or 10% ahead of the Zacks Consensus Estimate.
When you look at that report and what other home builders are saying, the prospects of out-performance are strong as long as interest rates continue to remain low.
The Zacks Research Wizard software allows me to plot all sorts of metric and estimates vs the stock price. I wanted to show this chart of the forward consensus revenue estimate for TPH plotted against the stock price. Continued growth in revenue is expected and that will likely drive the stock price higher.
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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.