Sept 10 – Fitch Ratings has affirmed its ratings for M.D.C. Holdings, Inc. (NYSE: MDC), including the company’s Issuer Default rating (IDR) at ‘BBB-‘. The Rating Outlook is Stable. A complete list of rating actions follows this release. MDC’s ratings are based on the company’s execution of its business model in the current moderately recovering housing environment, cautious land policies and solid liquidity. During the past cycle the company noticeably improved its capital structure, pursued conservative capitalization policies, and positioned itself to withstand the recently concluded sharp, long-lasting housing correction. Significant insider ownership of 26% aligns management’s interests with the long-term financial health of MDC. MDC underperformed relative to other low investment-grade industrial companies in recent years in an admittedly very harsh housing environment and trailed its homebuilding peers for much of 2011 in certain metrics. However, the company has come up with an effective strategy to close its relative performance gap and move to profitability. Its financial and operating execution during the past three quarters indicates clear progress in meeting its expense containment and profitability objectives. Builder and investor enthusiasm have for the most part surged so far in 2012, but housing metrics have not entirely kept pace. Year-over-year (yoy) comparisons have been solidly positive on a consistent basis. However, month to month the statistics (single-family starts, new home, and existing home sales) have been erratic and, at times, below expectations. In any case, year to date these housing metrics are well above 2011 levels. As Fitch has noted in the past, recovery will likely occur in fits and starts. Fitch’s housing forecasts for 2012 have been raised since early spring, but still assume only a moderate rise off a very low bottom. In a slowly growing economy with relatively similar distressed home sales competition, less competitive rental cost alternatives, and new home inventories at historically low levels, single-family housing starts should improve about 12%, while new home sales increase approximately 10.5% and existing home sales grow 5.6%.
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