On Thursday, Raymond (NSE:RYMD) James analyst Buck Horne adjusted the price target for M/I Homes (NYSE:MHO) stock, reducing it to $168 from the previous $210, while sustaining a Strong Buy rating on the company's shares. According to InvestingPro data, M/I Homes appears undervalued at its current price of $128.44, trading at just 6.9 times earnings. Horne's assessment underscores M/I Homes as still offering one of the best risk/reward opportunities in the homebuilding sector, despite anticipating increased gross margin pressure due to sustained high mortgage rates throughout the fiscal year 2025.
The analysis by Raymond James indicates that M/I Homes is expected to maintain a high return on invested capital (ROIC) in the high teens, aligning with InvestingPro's reported ROIC of 14%. The company's strong financial position is evident in its impressive current ratio of 7.61, indicating robust liquidity. Trading at 1.23 times book value and maintaining a moderate debt-to-equity ratio of 0.35, the company is well-positioned for its projected share repurchases. The forecast suggests that around $200 million could be used for buybacks in FY25, potentially acquiring 5% of the company at current market prices.
M/I Homes has reported a year-over-year net order growth of 11% in the fourth quarter of 2024, matching InvestingPro's forecasted revenue growth for FY2024. This performance demonstrates effective market share gains in a challenging environment. This has been achieved by offering incentives to assist buyers with their monthly payments, with approximately half of the buyers using buy-downs. Despite these incentives, the firm anticipates that M/I Homes' core homebuilding margins will stabilize in a historically healthy range of around 23-24%, supported by the company's current gross profit margin of 26.5%.
Horne concludes that even with the current market conditions and the need for enhanced buyer incentives, M/I Homes presents an extremely attractive total return opportunity with limited downside. This is based on the shares trading at just 7.4 times the revised FY25 earnings per share (EPS), with InvestingPro analysis revealing 10 additional key insights about the company's financial health and growth potential. The analysis suggests that the company is well-positioned to capitalize on potential market improvements, including a drop in mortgage rates beyond current expectations.
In other recent news, M/I Homes Inc. reported record-breaking fourth quarter results. The homebuilder's earnings per share fell short of analyst estimates at $4.71, despite revenue rising 24% year-over-year to reach $1.2 billion, surpassing the expected $1.15 billion. The company delivered 2,402 homes in the fourth quarter, marking a 19% increase from the previous year, while new contracts rose 11% to 1,759 units.
For the full year of 2024, M/I Homes reported a net income of $563.7 million, or $19.71 per diluted share, a 21% increase from 2023. The annual revenue also saw a boost, increasing 12% to $4.5 billion. CEO Robert H. Schottenstein cited improved gross margins and strong fundamentals as reasons for optimism in 2025. The company ended the year with $822 million in cash and a homebuilding debt-to-capital ratio of 19%. These are among the recent developments that have unfolded at M/I Homes.
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