Century Communities Inc (“CCS”) – The Investor Weekly Stock Report
Summary
Homebuilding stocks continue to rise on the foundation of high demand and low interest rates.
Century Communities Inc still has a strong backlog and benefits from strong management and a specialty home building model.
The Company has reported ten quarters of consecutive improvement and returns 31% on Common Equity.
Sound fundamentals and recent share price weakness make Century Communities Inc an attractive target.
Risks include current supply chain shortages and rising interest rates causing a dampening in homebuyer demand.
CCS Stock Data and Company Fundamentals
CCS Company Profile
Century Communities Inc is a homebuilding and construction company. Its operations are comprised of land acquisition, development, and entitlements, as well as the acquisition, development, construction, marketing, and sale of various single-family detached and attached residential home projects.
The Company offers homes under the Century Communities and Century Complete brands. It sells homes through its sales team, as well as through independent brokers in 17 states. Century Communities Inc was founded in 2002 and is headquartered in Greenwood Village, Colorado.
Century Communities Inc is the 9th largest homebuilder in the US. The Company manages 75,000 lots as part of its portfolio and participates in some of the nation’s fastest growing real estate markets, including Atlanta, Denver, Las Vegas, Fort Myers, Colorado Springs, Seattle, Greenville, Charlotte, and Columbia.
The Company has a history of excellence and was the fastest-growing public builder for three years in a row between 2017 and 2019.
Century Communities Inc broadly targets customers, but their sweet spot is first-time buyers and first / second move-up buyers. The Company continues to build communities outside expensive metro areas within proximity to easily accessible transportation; these areas of focus tend to have less competition from other large public builders. Additionally, these areas are challenging for smaller, local builders to compete with Century’s size, scale and resources.
Century Communities Inc employs a land-light strategy, which allows it to free up capital. A land-light strategy means that the Company is focused on controlling the timing of land purchases. Land-light reduces the years owned supply of homesites and increases the percentage of land controlled through options or agreements versus owned lands. For Century Communities Inc, controlled lots increased from 56% Q3 2020 to 67% Q3 2021.
Controlled versus owned across the total land portfolio has increased by more than 300% since 2016.
The Company also benefits from price increases and spec construction, whereby the builder prices the homes later in the construction process. Management has highlighted the benefits of spec building, which include smarter pricing that captures profit maximization and improved efficiencies for trade partners, which decrease construction delays for trade partners.
The majority of Century Communities Inc’s builds are based on 15 plans across an 11-state footprint. Management believes that trade partners prefer the efficiency and consistency of a Century Communities Inc build – this is subjective, of course, but the value proposition is there.
Century Communities Inc Ownership
An invested management team is aligned with long-term stockholder interest. CO-CEOs Dale and Rob Francescon own 10%+ of Century Communities Inc.
Capital Structure
Market Capitalization: $2.53 billion
Total Debt: $1.25 billion
Cash: $491.88 million
Enterprise Value: $3.29 billion
Share Statistics
Shares Outstanding: 33.76 million
Float: 88.96%
Held by Insiders: 11.04%
Held by Institutions: 85.86%
YTD Chart
1 Year Chart
5 Year Chart
CCS Peers
We consider Century Communities Inc to be best-of-breed. Other peers to consider include GRBK, TPH, DHI, and LENB.
CCS Financials
Century Communities Inc has a proven track record of top-line growth and increasing profitability; the Company has an 18-year unbroken history of profitability.
EBTIDA has risen 410% over the last four years. And pretax income has increased more than 550% since 2017, from $84.2 million to $550.1 million in Q3 2021 (TTM).
For Q3 2021, sales grew 21% to $948 million and gross margins rose more than 800bps to 25.7%.
Revenue – Annual
Revenue – Quarterly
Gross profit, SG&A and operating margins are competitive to Century Communities Inc’s Peers.
Century Communities Inc generated a 31% ROE during Q3 2021.
The Company continues to post strong earnings on consecutive 2021 earnings call. Q3 2021 EPS rose 145% YOY and surprised analyst estimates by 18.6% to the upside. Further, the last three quarters have seen EPS rise 202%, while the last three years has seen EPS rise by 49%.
The Company has a strong backlog of 4,866 homes, with an estimated value of ~2.0 billion.
Century Communities Inc maintains a strong balance sheet and a liquidity position of $1.3 billion, which includes an $800 million unsecured revolving line of credit, with $0 outstanding at Q3 2021. Net Debt to EBITDA is 1.3x. And Net Debt to Net Capital has decreased by 307 bps. The Company has $0 near-term maturities.
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Book Value per share has risen more than 90% since 2017.
Earnings Per Share (“EPS”) – Quarterly | Non-GAAP
Earnings per share has rose 202% between 2017 and 2020. For the nine months ended 09.30.2021 EPS was $9.69 versus $3.41 YOY.
EPS – Earnings Estimates
Homebuilding Market
After being pulled down by raw material prices, increasing construction costs and rising mortgage rates in the first half of this year, the housing sector appears to be back on track. Look at iShares US Home Construction ETF, which has been hitting record highs lately. ITB has gained 46.8% this year.
Mortgage rates are still near historic lows, despite the Fed taking a more hawkish stance. Homebuyers are still creating skyrocketing demand for new homes. And US existing home sales rose to their highest levels this year in October. Home sales are on the rise to hit their best year since 2006.
Strong demand has been driven up by older millennial buyers and large rental operators.
Homebuilder confidence is rising to their highest levels since May 2021. There exists a lack of resale inventory, that when combined with strong consumer demand, will continue to drive single-family home building. We remain confident that homebuilders are currently well placed.
Challenges remain, however, on the supply side as logistical headwinds continue to force homebuilder to limit new orders.
Valuation
PE Ratio: 5.9
PEG Ratio: 0.04
Price/Sales: 0.62
Price/Book: 1.54
Price/Tangible Book: 1.57
Price/Cash Flow: 22.99
EV/Sales: 0.82
EV/EBITDA: 5.66
P/E Ratio 1 Year
EV/EBITDA (TTM)
Profitability (TTM)
Gross Margin: 23.69%
EBIT Margin: 14.24%
Net Margin: 10.64%
ROA: 12.26%
ROE: 30.54%
Asset Turnover Ratio: 1.38%
Income Statement (TTM)
Revenue: $4.0 billion
Revenue Growth: 34.77%
Net Income:425.36 million
Revenue Per Share: $118.25 million
Gross Profit: $946.77 million
EBITDA: $580.61 million
Operating Income: $569.23 million
Balance Sheet (Q3 2021)
Cash: $491.88 million
Total Debt: $1.25 billion
Short-Term Debt: 231.44 million
Long-Term Debt: $1.00 billion
Current Ratio: 6.82
Quick Ratio: 1.16
Long Term Debt/Total Capital: 35.73%
Cash Flow Statement (TTM)
Net Operating Cash Flow: $107.55 million
Free Cash Flow: $38.58 million
CCS Valuation
Century Communities Inc has a P/E ratio of 5.9x. Analysts expect EPS growth to be in the range of 9.5% to 10.0% for 2022E. EPS of $15.45 at a 5.9x forward multiple produces a price target of $91.
Average analyst estimates place the price target at $100, implying a one year price return of 30% to 35%.
As we write this article, the stock’s price sits at ~ $79.00, which is 8% below the 52-week high and 11% above the 50-day moving average.
References
Century Communities
https://investors.centurycommunities.com/ir-home/default.aspx
Hoya Capital
https://www.hoyacapital.com/
Seeking Alpha Premium
https://seekingalpha.com/symbol/CCS
Zacks
https://www.zacks.com/stock/news/1837493/5-stocks-driving-homebuilding-etf-to-all-time-highs?cid=CS-IBD-HL-etf_news_and_commentary-1837493
Disclosure
I am/we are long Century Communities Inc either through stock ownership, options, or other derivatives.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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