BTIG Maintains Neutral Rating on Century Communities (NYSE:CCS)
BTIG recently announced that they are maintaining a neutral rating on Century Communities, a home construction and building company. The analysis of the company was conducted following a series of virtual meetings with the newly appointed CFO, Scott Dixon, and BTIG clients. Despite the company’s efforts to move inventory, sales and traffic are showing normal seasonal patterns, leading to no plans to reduce sales incentives in the second half of the year.
Century Communities has not experienced significant resale competition affecting sales pace, except in the southwest Florida region, accounting for approximately 5% of total stores. The company remains optimistic about its structural financial soundness, expecting to sustain total margins in the early 20% range due to scale enhancement. Additionally, Century Communities believes it can achieve over 30% volume growth without significantly increasing fixed general and administrative costs.
The company’s strategic approach focuses on avoiding large-scale acquisitions and instead concentrating on smaller deals that can improve scale. This strategy emerged after BTIG adjusted Century Communities‘ estimated earnings per share (EPS) following the acquisition of Anglia Homes in Houston, adding 25 communities and 1,600 managed lots. The new forecasts project an increase in EPS from $10.15 to $10.20 in 2024 and from $11.10 to $11.35 in 2025. While this acquisition may slightly decrease total margins due to purchase accounting, it is expected to slightly increase orders, deliveries, and revenues.
Furthermore, the report highlights Century Communities‘ ongoing process of reducing managed lots by 40% from the first quarter of 2022 to the first quarter of 2023 and rebuilding land and store pipelines, citing anticipation of a more severe economic downturn than actual. These strategic cutbacks are expected to pressure earnings for several quarters.
BTIG also expressed interest in the expansion potential of Century Communities‘ Century Complete business segment, which offers a two-fold asset yield compared to the company’s existing business units. This expansion hinges on the company’s ability to increase its assets into finished products. While maintaining a neutral position on Century Communities‘ stock for now, BTIG will continue to monitor the company’s progress in this aspect.
Recent news from Century Communities includes significant financial performance growth. The company reported a 17% increase in delivery volume and a 24% surge in home sales revenue in the second quarter of 2024. This growth is attributed to strong demand for affordable new homes and strategic focus on affordability. Additionally, adjusted diluted EPS increased by 66% compared to the same period last year.
In light of these positive developments, Century Communities received an updated price target of $113 from B.Riley, up from $110, while maintaining a buy rating on the stock. B.Riley anticipates continued strong demand for new homes as Century Communities and other homebuilders successfully utilize interest rate reduction incentives.
Moreover, the company reported a 20% growth in net new contracts compared to the same period last year and closed the quarter with a record 266 communities. A new share repurchase program was approved, and Scott Dixon was promoted to CFO.
Despite these positive developments, Century Communities‘ financial services revenue maintained a flat trend compared to the same period last year due to cost increases and reduced sales profits, leading to decreased profitability.
InvestingPro Insights
In light of BTIG’s recent analysis, InvestingPro’s latest data provides additional context for investors considering Century Communities (NYSE:CCS). With a market capitalization of $2.89 billion and a price-to-earnings ratio of 9.12, the company presents a value in line with industry standards. Particularly, the P/E ratio of 8.93 for the trailing 12 months as of the second quarter of 2024 reflects a slight adjustment, capturing a minor shift in valuation. The revenue growth rate of 4.14% over the same period has been steadily increasing, indicating a robust trajectory for the company’s earnings potential.
InvestingPro emphasizes that Century Communities‘ three consecutive years of dividend increases demonstrate confidence in financial stability and shareholder returns. Additionally, three analysts have upwardly revised future earnings outlook, presenting a positive outlook for the company’s performance. For investors seeking more in-depth analysis, InvestingPro offers additional tips on Century Communities and can be accessed at https://www.investing.com/pro/CCS.
With a high return rate over the past five years and a 13.04% dividend growth rate in the trailing 12 months as of the second quarter of 2024, Century Communities appears to be keeping its promise of structural financial soundness. These indicators, coupled with a robust revenue gross margin of 22.79%, enhance the company’s outlook, offering an attractive narrative to investors beyond the neutral rating bestowed by BTIG.
In conclusion, Century Communities continues to show promising growth and financial stability, positioning itself as a compelling investment opportunity. The company’s strategic initiatives and positive financial performance underscore its potential for future success. Investors looking to capitalize on this potential should consider the insights provided by BTIG and InvestingPro to make informed decisions in the dynamic market landscape.