New Communities Will Drive Growth at AV Homes

Author's Avatar
Feb 11, 2015

AV Homes (AVHI, Financial) is benefiting from recovering housing market conditions, leading to a strong outlook for 2015. This strong outlook for housing market should enhance its top as well as bottom line numbers going forward. Moreover, the homebuilder is strategically selecting, acquiring and opening new communities that should support its long-term growth. It remains focused on opening new communities. It’s selling and closing metrics look quite attractive. The homebuilder expects to sell about 30 communities and close approximately 25 in the on-going quarter.

Royal Oak Homes to boost its growth…

The company should gain from its acquisition of Royal Oak Homes with expansion in the housing market. Royal Oak Homes is expected to drive growth for its residential orders that had increased about 588% in the last reported quarter. This acquisition has helped the company to gain more number of contracts for its primary residential segments. For instance, this acquisition has led its sales to increase about 500% to 172 homes. The acquisition also boosted its selling communities to 25 in the third quarter from 7 in the same quarter 2013. As a result its residential segment sales rose to $42 million from just $6.5 million a year ago.

It has recently opened its first community for sale in the Charlotte market that should certainly increase its sales in the Carolinas. Also, it is experiencing higher absorption at its existing active communities and higher unit price per closing. Its closing home increased about 91% and the unit price per closing improved around 17.1% during the third-quarter. It closed about 280 homes, with unit price per closing of $254,000 annually.

The company remains good with new communities and closing this quarter that should assist the company to improve its bottom line performance with the better closing price. Also, it has solid backlog that should improve its top line performance. Its backlog had increased 108% to $120.9 million on approximately 470 units.

Final take and valuation

AV homes looks pretty good with the rebound in the housing market. The company is making significant progress with its strategies and leveraging them into its business that should enhance its growth this year and into 2015. The analysts expect its earnings to grow at CAGR of 20.00%, higher than average industry CAGR of 11.77% for the next five years. This indicates remarkable growth for its earnings in the long-run.

Also, the stock carries attractive short-term returns. Its earnings are expected to grow 87.30% this year and 76.50% by next year respectively. Its balance sheet carries total cash of $181.85 million and total debt of $299.98 million.