Top 9 US Homebuilder and Construction Stocks In 2023

Top 9 US Homebuilder and Construction Stocks In 2023

UPDATED Apr 16, 2024

Home building companies are those that buy land, develop it, and then build houses to sell. Some home builders also build homes and condominiums to rent, or to sell to REITs.

Most countries face a housing shortage - even those with declining populations. Residential and demographic patterns change over time, which means there is an ongoing need for new housing. This steady demand acts as a tailwind for home builders.

Home building is a cyclical industry, but well managed construction companies have managed to create significant value over time.

Revenues are closely correlated with the US housing starts index which is affected by mortgage rates. Margins are affected by the cost of building materials as well as inventory levels.

Current monetary policy has been a bit of a headwind for the homebuilding industry. Rising interest rates and rising inflation has meant that it’s more expensive for homebuyers to build a new home in terms of materials costs and in terms of debt financing.

These conditions could be setting the scene for a slight downturn in the homebuilding industry, however the cyclical nature of the industry means that each downturn in building activity sets up the next buying opportunity for investors.

Most building activity is quite conventional, but there are innovators experimenting with new materials and construction methods, including 3D house printing and energy efficient buildings.

9 companies

D.R. Horton, Inc. operates as a homebuilding company in East, North, Southeast, South Central, Southwest, and Northwest regions in the United States.

Why DHI?

Large homebuilder catering to all demographics.

  • D.R. Horton is one of the largest homebuilding companies in the United States, specializing in the construction and sale of single-family homes, townhomes, and condominiums, offering diverse products for various income levels and demographic groups.
  • Amid a housing shortage, D.R. Horton benefits from increased demand for new homes to keep up with the ever-growing population. More people require housing and so the cash inflows into the industry are allowing the company to expand its construction projects thereby creating a growing revenue stream.
  • D.R. Horton has recently launched its Express Homes line, which targets entry-level buyers with affordable pricing, addressing the need for budget-friendly housing options - particularly useful as household expenditure tightens as a response to rising inflation.
  • The company supplements the income earned on the lower-budget end of the market by providing mortgage financing and providing title agency services to buyers.
  • The company has been focused on strategic acquisitions of local builders like Riggins Custom Homes in December 2022, expanding its geographic reach and entering new markets, further capitalizing on the housing shortage.
  • In response to the growing demand for eco-friendly housing, D.R. Horton has introduced energy-efficient features and smart home technologies across its product offerings, making its homes more attractive to environmentally conscious buyers.
  • The company has a substantial rental segment, and can offer excess inventory as rental accommodation during market downturns, turning otherwise unused assets into revenue generating ones.
  • Turning to the financials, the company recorded net income of US$958.7M in the first quarter of FY2023, illustrative of a decrease of 16% compared to US$1.1B in the same quarter of FY2022. Homebuilding revenue for the first quarter increased marginally to US$6.74B from US$6.68B in the same quarter last year.
  • Homes closed in the quarter decreased 6% to 17,340 homes compared to 18,396 homes closed in the prior year period showing that things are slowing slightly, however recent acquisitions paint the picture that management is confident about D. R. Horton navigating the downturn.
  • D.R. Horton has a very strong balance sheet and pays a dividend yielding about 1%.

Rewards

  • Trading at 49.1% below our estimate of its fair value

  • Earnings are forecast to grow 4.93% per year

Risks

  • Significant insider selling over the past 3 months

View all Risks and Rewards

Toll Brothers, Inc., together with its subsidiaries, designs, builds, markets, sells, and arranges finance for a range of detached and attached homes in luxury residential communities in the United States.

Why TOL?

Leader in the luxury homes sector expanding their reach.

  • Toll Brothers is a leading luxury home builder in the United States, specializing in the design, construction, and marketing of high-end homes.
  • The company builds luxury homes in residential communities, with an average price of around US$1M which is three times the national average.
  • As a result of the housing shortage, Toll Brothers benefits from increased demand for upscale housing, although it has to be wary in times of rising interest rates as the demand at the top end of the market slows when the cost of borrowing rises.
  • Toll Brothers has expanded its product portfolio with the addition of Toll Brothers Apartment Living, a division focused on the development, management, and operation of luxury rental communities, diversifying its income sources.
  • The company has recently acquired several regional home builders to enhance its market presence and strengthen its position in key growth markets. In 2021, the company acquired StoryBook Homes to gain an entry into Las Vegas and Keller Homes the year prior to diversify into the Colorado Springs market.
  • The first quarter of FY2023 saw a slight increase in earnings for Toll Brothers, with net income coming in at US$191.5M, a respectable increase over the US$151.9M reported in the first quarter last year. Much like many of the companies on this list, Toll Brothers is stuck in a bit of a situation where Home sales revenues were up 4% to US$1.7B due to higher costs being passed onto the end customer, but overall demand is down with delivered homes down 5% to 1,826.
  • Toll Brothers plans to invest in research and development to explore innovative construction materials and methods, ensuring it remains at the forefront of industry trends and maintains its competitive advantage in the luxury homebuilding sector.

Rewards

  • Price-To-Earnings ratio (8.4x) is below the US market (16.5x)

  • Earnings are forecast to grow 2.4% per year

  • Earnings grew by 7.1% over the past year

Risks

  • Significant insider selling over the past 3 months

View all Risks and Rewards

Lennar Corporation, together with its subsidiaries, operates as a homebuilder primarily under the Lennar brand in the United States.

Why LEN?

Second largest homebuilder in the US experimenting with new construction methods.

  • Lennar Corporation is the second largest homebuilder in the United States. Based in Texas, Lennar Corp concentrates on the lower-end of the market for single family homes and apartments.
  • Lennar Corporation has developed its "Next Gen" line of homes, designed to accommodate multi-generational living with separate living spaces, addressing the needs of an evolving homebuyer market. Particularly as the cost of home ownership rises and the population ages, capturing the demographic with needs for multi-generational living spaces will be a key growth driver for Lennar.
  • The company is experimenting with 3D house printing technology with a residential community of 100 homes it is developing in Texas. The project is a partnership between Lennar, Icon and BIG.
  • While prices in this experimental development are anticipated to start from the mid-$400,000s, the expectation that the innovations will help deliver future homebuyers with cheaper and more efficient housing that can be produced quicker than traditional building methods.
  • Looking at the most recent earnings report, compared to the same quarter last year, the latest Q1 results from Lennar Corp saw new home deliveries increase 9% to 13,659 homes. On the other hand, new orders decreased 10% to 14,194 homes and new orders dollar value decreased 18% to US$6.4B indicating a slowdown may have already begun for the industry.
  • Awareness of the home builder industry’s difficult outlook has helped Lennar realign its strategy with a focus on strengthening its balance sheet. For the homebuilding part of the business, they were able to achieve a debt to capital ratio of 14.2%, the lowest in the company’s history. With liquidity of approximately $6.7 billion and no debt maturing until next fiscal year, their balance sheet is prepared to endure some of the harsher roads ahead.
  • Lennar has used its scale to deliver higher margins than its peers and pays a dividend yielding around 1.6%.

Rewards

  • Trading at 25.3% below our estimate of its fair value

  • Earnings are forecast to grow 4.12% per year

Risks

No risks detected for LEN from our risks checks.

View all Risks and Rewards

NVR, Inc. operates as a homebuilder in the United States.

Why NVR?

Diversified revenue provides stability in market downturns.

  • NVR, Inc. is a prominent homebuilder and mortgage banking company in the Eastern and Midwestern US, specializing in the construction and sale of single-family homes, townhomes, and condominiums under the Ryan Homes, NVHomes, and Heartland Homes brands.
  • NVR, Inc. employs an innovative land acquisition strategy, focusing on optioning land instead of purchasing it outright, reducing financial risk and enabling the company to adapt quickly to changing market conditions.
  • The business model has allowed NVR to generate returns on capital as high as 48%. Earnings are still cyclical, but carry less risk and less downside during downturns.
  • NVR also operates NVR Mortgages to serve the needs of homebuyers within the NVR ecosystem. While the income is diversified in terms of verticality, they still face the same headwinds caused by rising interest rates and cost-of-living concerns.
  • Net income for the fourth quarter ended December 31, 2022 came in at US$454.8M, a 36% increase when compared to 2021 fourth quarter net income of US$334.6M. This impressive performance compared to some of the other pure-play builders and is due in part to the unique business model.
  • New orders in the fourth quarter of 2022 decreased by 27% to 4,153 units, when compared to 5,685 units in the fourth quarter of 2021. Perhaps an indication of a slowing industry and a cooling of demand for new houses in the short term due to macroeconomic pressures.

Rewards

  • Trading at 3.3% below our estimate of its fair value

Risks

  • Earnings are forecast to decline by an average of 1.3% per year for the next 3 years

  • Significant insider selling over the past 3 months

View all Risks and Rewards

M/I Homes, Inc., together with its subsidiaries, engages in the construction and sale of single-family residential homes in Ohio, Indiana, Illinois, Minnesota, Michigan, Florida, Texas, North Carolina, and Tennessee.

Why MHO?

Smaller homebuilder with a focus on sustainability.

  • M/I Homes, Inc. is a leading national homebuilder in the United States, specializing in the design, construction, and sale of single-family homes, townhomes, and condos. This is the smallest home builder in this collection and may carry slightly more risk, but also has more room to grow.
  • M/I Homes builds planned development communities and mixed-use communities across a range of prices in the mid to lower end of the market. This will be particularly beneficial in the face of a looming homes shortage, as these are the largest demographics and will see the steepest rise in demand.
  • M/I Homes, Inc. offers a "Whole Home Building Standards" program, focusing on energy efficiency, indoor air quality, and sustainable construction practices, making its homes a more attractive option for buyers who are seeking lower-end homes with a focus on elements that are often ignored in lower-cost housing construction.
  • M/I Homes, Inc. has a mortgage banking subsidiary, M/I Financial, which provides mortgage and title services to its homebuyers, diversifying its income sources and providing an all-encompassing experience to new homebuyers, simplifying the process for them.
  • The company has shown very strong growth when the housing market has been strong. Between 2017 and 2022 EPS increased 40% per year. The bigger test for a company like this will be in the coming years as we enter a period of higher interest rates and cost-of-living pressures.

Rewards

  • Trading at 92.5% below our estimate of its fair value

  • Earnings are forecast to grow 3.55% per year

Risks

  • Significant insider selling over the past 3 months

View all Risks and Rewards

Summit Materials, Inc. operates as a vertically integrated construction materials company in the United States and Canada.

Why SUM?

Materials supplier providing the building blocks for the future of construction.

  • Investing in pure-play homebuilders isn’t the only way to get exposure to the industry. Another way to capitalize on homebuilding is by investing in companies that produce building materials.
  • Summit Materials, Inc. is a leading construction materials company in the United States, providing aggregates, cement, ready-mix concrete, and asphalt for residential, commercial, and infrastructure projects.
  • The rising demand for housing is a boon for Summit Materials, who benefits from the resultant rise in the need for construction materials. Sales of construction aggregates will rise and the company should see a handy boost to the bottom line if market prices of the materials leap in response, improving Summit’s margins.
  • The company incorporates recycled materials into its products where possible. For example, Summit Materials uses reclaimed asphalt pavement (RAP) in its asphalt production, which not only reduces waste but also conserves natural resources. This not only helps to meet customer demand for sustainable materials but also provides an opportunity to create environmentally friendly products.
  • Summit’s net revenue decreased 7.5% in the fourth quarter of 2022 to US$511.7M, as increases in average sales prices across all lines of business were more than offset by lower volumes, which includes the impact of divestitures.

Rewards

  • Trading at 43.1% below our estimate of its fair value

  • Earnings are forecast to grow 24.95% per year

  • Earnings have grown 37.9% per year over the past 5 years

Risks

  • Interest payments are not well covered by earnings

  • Shareholders have been diluted in the past year

  • Large one-off items impacting financial results

View all Risks and Rewards

Tecnoglass Inc. manufactures, supplies, and installs architectural glass, windows, and associated aluminum and vinyl products for commercial and residential construction markets in Colombia, the United States, Panama, and internationally.

Why TGLS?

Materials supplier diversified across the commerical and residential sectors.

  • Tecnoglass is an example of another company that gives investors exposure to the homebuilder industry while also remaining adequately insulated from the worst of a possible housing downturn due to its presence in the commercial market.
  • Tecnoglass Inc. is a leading manufacturer of high-quality architectural glass, windows, and associated aluminum products primarily serving the residential and commercial construction sectors.
  • Tecnoglass benefits in much the same way homebuilders do in the context of housing shortages. The increased demand for housing is directly correlated with an increase in demand for their materials as commercial and residential construction expands to meet demand.
  • The company offers a wide range of energy-efficient glass products and solutions, which ties in well with demand for eco-friendly construction materials. In fact, the more homebuilders that shift towards offering eco-friendly constructions, the better it is for Technoglass.
  • The company has entered into strategic partnerships and supply agreements with major homebuilders and construction companies, further capitalizing on the housing shortage and enhancing its position in the market.
  • Tecnoglass recorded a spike in revenues during Q4, seeing a rise to US$211.1M compared to the prior year quarter, a result that was largely driven by organic growth in both single-family residential and multi-family/commercial businesses.
  • Gross margin improved 930 basis points year-over-year to 52.2%, helping the company deliver earnings US$55.1M.

Rewards

  • Price-To-Earnings ratio (14.9x) is below the US market (16.5x)

  • Earnings are forecast to grow 4.55% per year

  • Earnings grew by 17.4% over the past year

Risks

  • High level of non-cash earnings

View all Risks and Rewards

voxeljet AG provides three-dimensional (3D) printers and on-demand parts services to industrial and commercial customers in Europe, the Middle East, Africa, the Asia Pacific, and the Americas.

Why VJTT.Y?

Innovator in the construction industry pursuing new building techniques.

  • Voxeljet is a leading provider of industrial 3D printing solutions, specializing in the production of large-scale 3D printers and on-demand parts services for various industries, including the construction sector.
  • Voxeljet’s 3D printing technology offers a faster, more efficient, and sustainable alternative to traditional construction techniques, contributing to the growing trend of eco-friendly building practices.
  • The company has recently launched its next-generation 3D printers, featuring improved printing speeds and enhanced capabilities, better catering to the needs of the construction industry.
  • Voxeljet has entered into strategic partnerships and collaborations with major construction companies, architects, and designers to explore and promote the use of 3D printing in residential and commercial building projects.
  • Total revenues increased 16.1% to €5.735M in 3Q22 from €4.938M in 3Q2 illustrating the growing use cases for Voxeljet’s technology. Gross profit margin in Systems decreased to 24.1% in 3Q22 vs. 44.1% in 3Q21. This decrease was mainly due to a less favorable product mix regarding our printer sales.
  • The company plans to invest in research and development, exploring innovative 3D printing materials, technologies, and processes to stay ahead of industry trends and maintain its competitive edge in the industrial 3D printing market.

Rewards

  • Earnings have grown 0.8% per year over the past 5 years

Risks

  • Highly volatile share price over the past 3 months

  • Does not have a meaningful market cap ($9M)

View all Risks and Rewards

Taylor Wimpey plc operates as a homebuilder in the United Kingdom and Spain.

Why TW.?

Capitalizing on the home growers market.

  • Taylor Wimpey plc is one of the largest residential developers in the UK, specializing in the design, construction, and sale of high-quality homes that the company prides itself on being energy efficient.
  • Much like the US, the UK is grappling with a critical undersupply of homes. Reports state that as much as 4.3M homes are missing from the UK housing market as they were never built. At the government’s current home building target, it would take over 50 years to work through the backlog of homes. Taylor Wimpey benefits from this increased demand for new homes, enabling the company to take new home building contracts at lucrative premiums.
  • Taylor Wimpey is committed to sustainable construction practices, incorporating energy-efficient features and eco-friendly materials in its developments, attracting environmentally conscious buyers and supporting the demand for green homes.
  • The company has recently pursued strategic acquisitions of land and entered into partnerships with local authorities and housing associations to develop new residential communities and affordable housing schemes, further capitalizing on the housing shortage.
  • Taylor Wimpey offers a range of financial services to its homebuyers, including mortgage advice and assistance with government-backed homebuying schemes, enhancing the customer experience and expanding on its income sources through verticality.

Rewards

  • Trading at 51.8% below our estimate of its fair value

  • Earnings are forecast to grow 8.76% per year

Risks

  • Profit margins (9.9%) are lower than last year (14.6%)

View all Risks and Rewards

Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned.

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