Homebuilder stock Taylor Morrison Home (TMCH) plunged after announcing it is buying William Lyon Homes (WLH) for $2.4 billion, marking its sixth builder acquisition in seven years.
XTaylor Morrison will pay $2.50 per share and give 0.8 shares of TMHC stock for each William Lyon share. This represents the tangible book value of the latter company. The deal is expected to close late in the first or early in the second quarter. The firms believe they can achieve approximately $80 million in annualized synergies.
Arizona-based Taylor Morrison is America's seventh-biggest homebuilder by revenue. When the deal closes it will become the nation's fifth largest homebuilder. It operates in Arizona, California, Colorado, Georgia, Florida, Illinois, North Carolina, South Carolina and Texas.
California-based William Lyon Homes has a large footprint in the Pacific Northwest, and will provide Taylor Morrison with entry into the Washington, Oregon and Nevada markets.
Wedbush Securities analyst Jay McCanless said the deal expands Taylor Morrison's geographic and entry level presence. The latter market has been seen as a big opportunity for homebuilders.
"TMHC will deepen its presence in Texas, Arizona, Colorado and California while adding the pacific northwest markets," he said in a note to clients. "With WLH's over 50% focus on entry level and active adult products, we believe TMHC is adding communities in the sweet spot of current demand."
McCanless is rating Taylor Morrison stock as outperform with a 33 target.
Taylor Morrison Stock
Shares sank 8% to 21.83 on the stock market today, testing their 200-day moving average. William Lyon stock surged 7% to 19.74, hitting resistance at its 50-day line. Among other leading homebuilder stocks, LGI Homes (LGIH) added 1%, Lennar (LEN) dipped 0.2%, and D.R. Horton (DHI) rose 1%.
Both Taylor Morrison stock and William Lyon stock are members of the Building-Residential/Commercial Industry Group. Weak earnings results have saw the group plunge from the top of the rankings last week to 123rd out of the 197 groups tracked this week.
The relative strength line for Taylor Morrison stock has taken a dramatic dip since mid-October, after weak earnings Oct. 30 sent shares plunging out of profit-taking zone from a previous breakout.
Nevertheless, the stock has a strong IBD Composite Rating of 81. Earnings are a cornerstone to this, with the stock holding an EPS Rating of 82. However the Stock Checkup Tool shows average earnings growth over the past three quarters of 20%, which is just shy of CAN SLIM requirements.
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The post Why This Homebuilder's $2.4 Billion Acquisition Hits The 'Sweet Spot' appeared first on Investor's Business Daily.
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