Single-family homebuilder Century Communities (CCS) has demonstrated the ability to produce strong free cash flow. That is good news for investors in the Company’s shares, as free cash flow ends up enhancing shareholder value in the form of dividend hikes and share repurchases. I’m neutral on the shares of CCS. (See Analysts’ Top Stocks on TipRanks)
Since the pandemic, Century Communities has been riding the strong demand for homes, fueled by low mortgage rates and a structural shift in the market for shelter, from apartments to single-family homes.
At the end of October, the Company reported a record net income of $114.0 million, or $3.31 per diluted share. Sales came in at $917.3 million, up 21% from a year ago. Meanwhile, the gross margin jumped to 25.7% compared to 17.5% a year earlier.
Dale Francescon, Chairman and Co-Chief Executive Officer, hailed the Company’s solid Q3 performance, “Our impressive results and record earnings are the results of strong demand for affordable, new homes across our national footprint encompassing over 40-markets.”
He continued to say, “Our significant scale and geographic diversity enabled us to manage and mitigate increased operational costs and realize the third quarter in a row of a single-digit SG&A ratio. In addition, we delivered 2,322 homes in the third quarter, propelled by double-digit year-over-year increases in our West region and Century Complete line, demonstrating the effective navigation by our talented team of the industry-wide supply chain challenges and highlighting the strength of the underlying operating fundamentals of our Company.”
Rob Francescon, Co-Chief Executive Officer and President, sees this performance continuing in the coming quarter due to the strong backlog. He stated, “Century’s robust, record backlog of 4,866 homes valued at $1.9 billion has us more strongly positioned than ever before to capitalize on the continued growth opportunities ahead of us. In the third quarter, nearly 10,000 net new lots were secured, with Century’s total lot supply increasing to a Company-record 75,537 lots, and our percentage of controlled lots increasing to 67% from 56% in the same quarter of last year.”
Meanwhile, Francescon praised the Company’s land development strategy, “Our land-light strategy allows us to achieve this record lot pipeline to fuel our future growth while simultaneously de-risking our business, reducing our leverage, and bolstering cash flows and liquidity. We achieved a 31% ROE, the 10th consecutive quarter of improvement and the highest in our history, and are confident in our ongoing ability to deliver improved returns while driving exceptional shareholder value in the quarters and years ahead.”
TipRanks’ Smart Score
The TipRanks Stock Analysis system assigns a Smart Score of 9 out of 10 to Century Communities, citing solid technical fundamentals and increased hedge fund activity.
Investors love robust free cash flow, the money that ends up to shareholders one way or another. In the last five years, Century Communities’ shares have gained 244% compared to 114% for the S&P 500.
Wall Street’s Take
Turning to Wall Street, Century Communities has a Strong Buy consensus rating, based on three Buys assigned in the past three months. The average Century Communities price target of $95 implies 29.9% upside potential.
Analyst price targets range from a low of $75.00 per share to a high of $121.00 per share.
The Bottom Line
Century Communities is well-positioned to deliver superior returns to its holders, provided that the rising inflation doesn’t push the Federal Reserve to raise interest rates sooner rather than later.
Disclosure: At the time of publication, Panos Mourdoukoutas didn’t own any shares of Century Communities.
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