Taylor Morrison CEO: ‘Profit Is In Our DNA’

The newly public homebuilder is built for long-term success

   

Homebuilder Taylor Morrison (NYSE:TMHC) launched a successful IPO today. It not only priced 28.6 million shares at the top of its $20-to-$22 range, but is enjoying a 5% bump as of this writing.

This morning, I had a chance to talk to CEO Sheryl Palmer, who came on board at Taylor in 2007 during the depths of the real estate depression.

A veteran of the industry, Palmer wasted little time getting the company on track. She pulled off a mega-merger, moved out of underperforming markets, cut headcount and brought in private equity money from top operators like TPG and Oaktree. At the core of this was a focus on changing the culture.

“Profit is in our DNA,” she said. “Our employees treat every dollar as if it is their own.”

It’s a great creed — and it has paid off handsomely.

Taylor’s footprint is in many of America’s hot markets, such as California, Florida and Phoenix.

But the business is not one-dimensional. Taylor also has a strong operation in Canada, with a focus on towers. While that business probably won’t grow much, it should provide juicy cash flows, which can then be invested in its U.S. projects.

TMHC’s mortgage arm is another great asset.

“We look at it as a way to get full transparency with our backlog,” Palmer said. “Every potential buyer must apply. This helps to lower our cancellation rates and also improve our capture rates.”

Still, the real play for investors is the potential of the U.S. market. Consider that during the downturn, when prices were cheap, Taylor doubled down on raw land purchases. What’s more, Taylor says her company has taken a conservative approach to valuations. Thus, TMHC could be spring-loaded for massive profits as real estate prices continue to ramp up.  Since 2009, the company has acquired 25,532 lots, of which 21,334 are still available.

The company’s financials certainly are in order. In 2012, revenues spiked 90% year-over-year to $1.44 billion, and earnings shot up from $25.6 million to $430.8 million. A large part of that mouth-watering profit number was attributed to tax benefits, but that doesn’t change the fact that Taylor Morrison is a business geared to generate strong returns.

When it comes to IPOs, I do not like buying shares on the first day of trading. There’s usually too much hype, and you often can pick up shares at a better price by simply waiting.

I suspect this will be the case with Taylor too, but in light of the company’s long-term prospects, it should be well worth the wait.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


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