Boarding Taylor Morrison’s Maiden Flight
Arturo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Call me a prophet of boom if you will, but there are more than enough reasons to be upbeat about the forthcoming $500 million IPO of U.S. homebuilder Taylor Morrison, which will be listed at the NYSE with THMC as its ticker.
Also, consider yourself among the fortunate if you have an active account and are a favored client of Citigroup, one of the lead underwriters for the IPO of the Scottsdale, Arizona-based Taylor Morrison. Being so gives you an inside track on what shapes up to be another hot IPO for a real estate-based issue, given the bullish outlook for the home market despite some opinions that such optimism has already been factored in at today’s price levels. But that’s another story.
Some learnings from real estate search engines
In July 2011, the real-estate website Zillow(NASDAQ: Z) had an $80-million IPO. Investors warmly received Zillow’s market debut. From its $20 per-share IPO price, the stock closed its initial day of trading with a 79% mark-up at $35.77, after trading as high as $44. This February, the company reported a 73% increase in its 2012 fourth quarter revenue to a record $34.3 million from $19.9 million in the 2011 fourth quarter, prompting some analysts to upgrade the stock from sell to hold.
Perfectly timed launch
Another online real estate search engine company, Trulia (NYSE: TRLA), likewise had a successful IPO in September last year. From its $17 initial offering price, it marked its maiden day in the market with a $22.10 opening price and rose by more than 46% at some point during the day’s trading. The timing for company’s stock market entry was perfect as it came just some weeks after the S&P/Case-Shiller Home Price Index showed its first year-over-year gain since 2010.
Investors’ hopes that Trulia will follow Zillow’s success have apparently materialized. Its shares are currently trading at around the $30 level, buoyed by a record 2012 fourth quarter revenues of $20.6 million, which was 75% above the year-earlier results. The company also reported an 84% increase in new user-generated content distributions, demonstrating strong subscriber growth and a rapid increase in mobile traffic.
There’s a whole universe out there
The forthcoming Taylor Morrison IPO follows this January’s public offering of Tri Pointe Homes (NYSE: TPH), the first U.S. homebuilder to go public since 2004. Parenthetically, Citigroup was also one of the underwriters of this IPO which sought to raise as much as $233 million. From its $17 IPO price, TPH gained as much as 18% in its first day of trading before closing at $19.05, up 12%. Some profit-taking, however, may have overtaken Tri Pointe this February as its share price currently trades near the $18 mark.
The relatively small universe where Tri Pointe holds fort also appears weighing down its shares. The U.S. home market is composed of several local turfs, each with its own idiosyncrasies. It is also a relatively young company, founded only in 2009. It operates in 13 communities in California, where it opened seven new selling locations in the nine-month span ended September 30, 2012. During the same period, it generated sales revenue of $22.3 million, up $13.0 million or 140%, from the year-ago period.
Big Four looms at the NYSE
Market diversification and searching for opportunities outside of the Golden State look to be the critical factors to Tri Pointe’s growth prospects for the future. For one, the current patterns of migration within the U.S. do not favor its home base, as expounded in the 2012 study, The Great California Exodus: A Closer Look.
Taylor Morrison, in contrast, is huge. With its IPO, it will join as fourth in the ranks of the largest U.S. publicly traded homebuilders, jockeying for position in the home market upsurge. Besides its operations in California, the company has a strong presence in Arizona, Colorado, and Florida, three areas that were recently cited among the ten states currently having the strongest housing markets.
A finger in every pie counts
In Florida, touted as being among the Sunbelt States benefiting from the aforementioned California exodus, Taylor Morrison operates in several metro areas. The company’s combined Florida and Texas operations account for Taylor Morrison’s east U.S. operations, generating 46% of the company’s net sales. Taylor Morrison’s west U.S. operations—California, Denver, and Phoenix—contribute 36% of the homebuilder’s net sales.
The only fly in the ointment in Taylor Morrison’s markets could be Canada, where it competes under the Monarch brand, generating 18% of the company’s total sales. The Canadian home market is experiencing declining sales and rising prices.
Parting shot before the boarding pass
Some financial highlights can aptly conclude the soundness in boarding Taylor Morrison’s NYSE maiden flight, and that it will soar higher than Tri Pointe’s IPO: In the nine months ended September 2012, closed home sales for Taylor Morrison totaled 2,586. In comparison, Tri Pointe sold 350 homes since its 2009 formation. During the 2012 nine-month span, Taylor Morrison generated $879 million in revenue and $81.8 million in net income. On the other side of the fence, Tri Pointe saw losses since its formation, setbacks that the company can hope to recover from given the boost the recent IPO gave to its homebuilding war chest, and the continuing bullish signs from the housing sector.
dARTtanyan001 has no position in any stocks mentioned. The Motley Fool recommends Zillow. The Motley Fool owns shares of Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!