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Taylor Morrison: A Home Building Stock You Can Buy at a Discount

Key Points

  • The U.S. housing market is poised to undergo another construction boom soon, just in time for Fed interest rate cuts.
  • While most homebuilding stocks have likely reached their full potential, one still offers a discount: Taylor Morrison.
  • Analysts like the story and recent fundamental trends back the stock for a continued rise shortly.
  • 5 stocks we like better than Taylor Morrison Home

Photo of a home in the middle of building built. Taylor Morrison Is A Home Building Stock You Can Buy at a DiscountThe U.S. housing market is just getting over the hump of a recent scare. According to data from the Intercontinental Exchange Inc., most homeowners currently hold mortgages at rates of around 3.2%, and only a few are willing to let go of this generational low financing rate.

On the buyer side, few would-be homeowners are willing to finance a new property at today's mortgage rates, which hover around 7.3%. The average home price rose by as much as 31% since the COVID-19 pandemic to a $492,300 price range.

Suppose no one wants to sell their cheaply financed property, and few can afford a much more expensive home at high rates. In that case, the only way to get out of this stagnant market is to build a way out of the freeze with new inventory.

Stocks like D.R. Horton Inc. and PulteGroup Inc. broke to new all-time highs and have been flirting with these levels since. However, their P/E valuations reached levels above the residential construction industry average multiples, making Taylor Morrison Home Co. NYSE: TMHC and its current valuation the only sensible value play left in the construction sector.

Buffett Got It Right Again

After buying into D.R. Horton and other stocks in the homebuilding space, Warren Buffett let the rest of the market know that a residential construction boom may be coming.

So far, he's been proven right, as U.S. building permits have sustained their uptrend for the past quarter. These permits will eventually turn into housing units, helping to untie the current housing market. These homebuilders could be setting up for a blockbuster quarter ahead, as the preparation window is now closing.


According to the CME FedWatch tool, traders have now priced in the Fed's potential rate cuts for May or June 2024. With less than a few months worth of preparation, investors could save a lot of time by finding the gap that needs to be filled by Taylor Morrison. Lower interest rates could help mortgage rates decline, giving investors near-perfect timing for new housing units to hit the market as the Fed gets ready to cut financing rates.

Taylor Morrison Is Fundamentally Driven

Taking the most wishful thinking outside of this potential opportunity, investors can focus on what really matters for homebuilding stocks: net new orders. New orders are the industry's key performance indicator (KPI) and how Wall Street decides which stock to reward.

For Taylor Morrison, the 2023 fourth-quarter financial results show a jump of 30% in net orders. What's more, home closing revenue came in at $7.2 billion, comprised of 11,495 closings at an average price of $623,000.

A booming or busting economy doesn't make a difference at this price range, which is above the national average. Buyers looking to be in the property market at these price levels aren't apprehensive about the business cycle. Still, lower rates definitely won't hurt demand.

While D.R. Horton's new orders rose by 35% and PulteGroup's by 57%, besting Taylor Morrison's, revenues remain the focal point. D.R. Horton generated $7.7 billion, on par with Taylor Morrison. PulteGroup's $4.2 billion revenue shows that quantity isn't much without quality. As Taylor Morrison's sales quality is higher (as seen in the superior revenue figures despite the lower order growth), its price-to-sales (P/S) multiple should be exceptional, yet it isn't.

Wall Street Likes the Taylor Morrison Story

At a valuation of 0.9x P/S, the market may have overlooked Taylor Morrison due to its $6.6 billion market capitalization. Willing to pay a much higher valuation of 1.5x P/S, investors may have found safety in D.R. Horton's $54.6 billion size. The same goes for PulteGroup's 1.6x valuation; a market cap of $25.5 billion called the shots there.

Yet, there must be a reason why Royal Bank of Canada analysts boosted their price targets for Taylor Morrison stock up to $61 a share, calling for a 5% upside from today's price. Analysts at Barclays think that the stock could reach $60 as well. Because these targets were assigned in February 2024, they have yet to reflect the current state and trend that potential interest rate cuts could have on the company's financials.

Should you invest $1,000 in Taylor Morrison Home right now?

Before you consider Taylor Morrison Home, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Taylor Morrison Home wasn't on the list.

While Taylor Morrison Home currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Barclays (BCS)
4.4238 of 5 stars
$11.09+1.6%4.69%8.28HoldN/A
Barclays (BARC)
2.3691 of 5 stars
GBX 216.15+0.5%3.70%831.35BuyGBX 265
CME Group (CME)
4.7842 of 5 stars
$214.92+1.3%2.14%24.45Hold$217.80
D.R. Horton (DHI)
4.5725 of 5 stars
$144.62+1.3%0.83%9.84Moderate Buy$157.82
Intercontinental Exchange (ICE)
4.8555 of 5 stars
$136.34+0.7%1.32%31.27Moderate Buy$148.29
Royal Bank of Canada (RY)
1.9229 of 5 stars
C$143.92+0.2%3.84%13.36Moderate BuyC$140.36
Royal Bank of Canada (RY)
4.7763 of 5 stars
$105.33+0.7%3.87%13.27Buy$137.67
Taylor Morrison Home (TMHC)
2.5203 of 5 stars
$57.68+1.4%N/A8.25Hold$58.20
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Gabriel Osorio-Mazilli

About Gabriel Osorio-Mazilli

  • gosoriomazzilli@gmail.com

Contributing Author

Value Stocks, Asian Markets, Macro Economics

Experience

Gabriel Osorio-Mazilli has been a contributing writer for MarketBeat since 2023.

Areas of Expertise

Value investing, long/short trading, options, emerging markets

Education

CFA Level I candidate; Goldman Sachs corporate training; independent courses

Past Experience

Analyst at Goldman Sachs, associate at Citigroup, senior financial analyst in real estate


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