RBC Says 4 Top Homebuilders Could Also Be Takeover Targets Now

March 23, 2018 by Lee Jackson

It happens every year, and 2018 won’t be any different. Larger companies looking to add to growth, in addition to that of the organic or internal variety, scan the field for purchases and acquisitions that are easy to bolt on and could add returns in a timely fashion. This year the process may even speed up some as last month’s market sell-off already may have put some companies in the sights of acquirers.

In what is a yearly and all-encompassing report, the analysts at RBC again go through every sector looking for possible buyout candidates. Last year, the company’s screens yielded 20 takeouts that eventually were acquired over the following 12 months.

One screen that should be of interest to many investors is the potential buyout candidates in the homebuilding industry. With demand for homes increasing, and a current shortage of first-time buyer new home inventory, it’s entirely possible some of the bigger companies would look to add companies that could help address the growing demand.

We cross-referenced the RBC potential takeout candidates looking for the highest profile names and found four that like solid choices.

Beazer Homes

This company has a huge national footprint and could be a tempting target. Beazer Homes USA Inc. (NYSE: BZH) operates as a homebuilder in the United States. It designs, constructs and sells single-family and multifamily homes for entry-level, move-up or retirement-oriented home buyers under the Beazer Homes brand name. It sells its homes through commissioned new home sales counselors and independent brokers in Arizona, California, Nevada, Texas, Delaware, Indiana, Maryland, Tennessee, Virginia, Florida, Georgia, North Carolina and South Carolina.

The company markets and sells its products through its website, real estate listing sites and online advertising, including search engine marketing and display advertising, social media, video, brochures, direct marketing and out-of-home advertising, including billboards and signage, as well as other activities.

The Wall Street consensus price target is $20.38. The shares closed Thursday at $16.27, in a 52-week trading range of $11.36 to $23.24.

Hovnanian Enterprises

This micro-cap home builder may very well be on the radar of a larger player in the industry. Hovnanian Enterprises Inc. (NYSE: HOV) designs, constructs, markets and sells single-family detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes in planned residential developments. The company markets and builds homes for first-time buyers, first-time and second-time move-up buyers, luxury buyers, active lifestyle buyers and empty nesters, which are in big demand right now.

The company has two distinct operations.

The homebuilding operations consist of six segments:

  • Northeast: New Jersey and Pennsylvania
  • Mid-Atlantic: Delaware, Maryland, Virginia, Washington, District of Columbia and West Virginia
  • Midwest: Illinois and Ohio
  • Southeast: Florida, Georgia and South Carolina
  • Southwest: Arizona and Texas
  • West: California.

The financial services operations provide mortgage loans and title services to the customers of its homebuilding operations.

The $1.52 consensus price target is less than the most recent close at $1.92 a share. The 52-week trading range is $1.66 to $3.41.

KB Home

This very well-known company could be acquired. KB Home (NYSE: KBH) is one of the largest U.S. homebuilders, with roughly 2% market share. The company builds single-family homes, townhomes and condos for first-time, move-up and active adult buyers. It is positioned in roughly 40 markets, with around 70% to 75% of revenues attributable to the West and Central regions. It also provides mortgage services through a joint venture with Nationstar.

Founded in 1957, and the first homebuilder listed on the New York Stock Exchange, the company has built nearly 600,000 homes for families from coast to coast. Distinguished by its personalized homebuilding approach, KB Home lets each buyer choose their lot location, floor plan, décor choices, design features and other special touches that matter most to them.

Shareholders are paid just a 0.5% dividend. The stock closed trading on Thursday at $28.84, in a 52-week trading range of $18.83 to $38.80. The consensus price target is $32.38.

Taylor Morrison

This homebuilder also operates in some of the most desirable areas of the United States. Taylor Morrison Home Corp. (NYSE: TMHC) designs, builds and sells single-family detached and attached homes. It is also a land developer, with a portfolio of lifestyle and master-planned communities.

Taylor Morrison segments:

  • East: Atlanta, Charlotte, North Florida, Raleigh, Southwest Florida and Tampa
  • Central: Austin, Dallas and Houston (the Dallas and Houston markets each include both a Taylor Morrison division and a Darling Homes division)
  • West: Bay Area, Chicago, Denver, Phoenix, Sacramento and Southern California.

The consensus price objective was last seen at $30.17, while the shares ended trading on Thursday at $23.65. Their 52-week trading range is $19.68 to $28.42.

While there is absolutely no guarantee that these companies are acquired, they all are outstanding stocks to own in aggressive growth portfolios on their own. The buyout factor is just another reason to consider them.

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