Taylor Morrison Home (TMHC)

Homebuilder Taylor Morrison Home (NYSE:TMHC) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 11.5% year on year to $1.90 billion. Its non-GAAP profit of $2.18 per share was 14.7% above analysts’ consensus estimates.

Company Overview

Named “America’s Most Trusted Home Builder” in 2019, Taylor Morrison Home (NYSE:TMHC) builds single family homes and communities across the United States.

Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.

Competitors of Taylor Morrsion include DR Horton (NYSE:DHI), Lennar (NYSE:LEN), and PulteGroupe (NYSE:PHM).

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, Taylor Morrison Home’s sales grew at a solid 10% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Taylor Morrison Home’s recent performance shows its demand has slowed as its annualized revenue growth of 1.1% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Taylor Morrison Home’s backlog reached $3.36 billion in the latest quarter and averaged 13% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, Taylor Morrison Home reported year-on-year revenue growth of 11.5%, and its $1.90 billion of revenue exceeded Wall Street’s estimates by 5.7%.

Looking ahead, sell-side analysts expect revenue to decline by 1.7% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

Taylor Morrison Home has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 23.2% gross margin over the last five years. That means Taylor Morrison Home paid its suppliers a lot of money ($76.81 for every $100 in revenue) to run its business.

Taylor Morrison Home’s gross profit margin came in at 24.4% this quarter, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Taylor Morrison Home has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 14%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Taylor Morrison Home’s operating margin rose by 6 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q1, Taylor Morrison Home generated an operating profit margin of 14.7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Taylor Morrison Home’s EPS grew at an astounding 25.6% compounded annual growth rate over the last five years, higher than its 10% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Taylor Morrison Home’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Taylor Morrison Home’s operating margin was flat this quarter but expanded by 6 percentage points over the last five years. On top of that, its share count shrank by 15.5%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Taylor Morrison Home, its two-year annual EPS declines of 2.6% mark a reversal from its (seemingly) healthy five-year trend. We hope Taylor Morrison Home can return to earnings growth in the future.

In Q1, Taylor Morrison Home reported EPS at $2.18, up from $1.75 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Taylor Morrison Home’s full-year EPS of $9.16 to shrink by 4.4%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Taylor Morrison Home has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 9.4% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Taylor Morrison Home’s margin dropped by 16.5 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Taylor Morrison Home hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 12.4%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Taylor Morrison Home’s ROIC averaged 3.2 percentage point increases each year. This is a good sign, and we hope the company can keep improving.

Taylor Morrison Home reported $377.8 million of cash and $1.99 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.34 billion of EBITDA over the last 12 months, we view Taylor Morrison Home’s 1.2× net-debt-to-EBITDA ratio as safe. We also see its $4.86 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We liked that revenue and EBITDA both beat analysts’ expectations this quarter. On the other hand, its backlog missed significantly. Overall, this quarter was mixed because the backlog metric is a leading indicator of future revenues, meaning a shortfall somewhat negates the good revenue and EBITDA performance in the quarter. The stock remained flat at $59 immediately following the results.

Updated: May 22, 2025 at 11:44 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Taylor Morrison Home’s business quality ultimately falls short of our standards. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s expanding operating margin shows the business has become more efficient, the downside is its cash profitability fell over the last five years.

Taylor Morrison Home’s P/E ratio based on the next 12 months is 6.4x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $73.23 on the company (compared to the current share price of $56.52).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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