3. Company Overview
3
SUMMARY
• TRI Pointe Group, Inc is a designer, constructor and seller
of single-family homes in the US.
• TPH owns 6 brands across 8 states (Arizona, California,
Nevada, Washington, Texas, Colorado, Maryland & Virginia)
• First IPO in homebuilding to emerge after 2008 recession
• Company merged with Weyerhaeuser Real Estate Company
(WRECO) to create one of the top 10 largest public
homebuilding companies in the US
• TPH was founded in 2009 and is based in Irvine, California.
It currently has 961 employees.
Management
Douglas F. Bauer, CEO & Director
Thomas J. Mitchell, President &
COO
Michael D. Grubbs, CFO
Linda H. Mamet, VP Corporate
Marketing
Board of Directors
Barry S. Sternlicht,
Chairman
Douglas F. Bauer, CEO &
Director
Steven J. Gilbert, Director
Kristin F. Gannon, Director
REVENUE MODEL
Sales of lots, lands and homes
COMPANY STRENGTHS
Focus on High Growth Core
Markets
Domestic company
Experienced business units
LEADERSHIP
4. Investment Thesis
Investment Thesis: Construction industry stocks are a buy as
technology advances and cost of construction materials
decreases.
Pricing: $13.47 - $19.50
Volumes: Volume has decreased as sales of houses are declining due to
increasing student debt, which is a burden to potential home-buyers
Margins:
Economic Cycle: Stocks have outperformed relative to competitors
Valuation: Stocks are trading at 16.4x P/E, above industry average
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5. Industry Overview
5
S&P Building & Construction
Select Industry Index
Industry Highlights
• Nationally the construction
industry’s employment has increased by
5% over the last few years.
• During the last decade sales of new
homes have decreased. Part of this is
due to increasing student debt, which is
a burden to potential home-buyers.
However, there have been growth in
non-residential construction.
• Overall cost of construction materials
has decreased, largely due to decrease in
oil and petroleum-based products.
• There has been a trend towards more
innovation in the construction industry,
with the invention of new methods and
new technologies, such as 3-D printer,
construction management software, etc.
• According to Dodge Data and Analytics,
the U.S. construction industry will rise 9%
to $612 billion over the next year.
6. Porter’s Five Forces
• Barriers to Entry: High
– High cost of production
– No threat of new entrants
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7. Porter’s Five Forces
• Substitutes:
– Lennar Corporation
– PulteGroup
– KB Home
– Standard Pacific Corporation
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9. Porter’s Five Forces
• Buyer Power: Low
– Low buyer concentration
– High switching costs
– No threat of backward integration
– Less price sensitivity (price inelastic)
– Uneducated customers
– Customers that purchase specialized
products
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10. Porter’s Five Forces
• Supplier Power: Low
– Land is increasingly scarce
– Entitlement is an increasingly complex &
lengthy process
– Material procurement is becoming more
regional & national, not just local
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11. Porter’s Five Forces
• Porter’s Five Forces:
– Industry looks fairly favorable
o Barriers to entry: high
o Substitutes: quite high
o Rivalry: quite high
o Buyer Power: low
o Supplier Power: low
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12. Current Valuation
12
VALUATION & METRICS
Valuation
Share Price $12.81
Shares Outstanding 162M
Market Cap $2.07B
Net Debt $110 million
Enterprise Value $3.22B
2015
P/E 16.42
EV/EBITDA 12.22
EV/Sales 1.54
• P/E ratio is currently 16.42x
• Industry P/E average is 25.04x
17. Forecasting Share Price
Low Medium High
EPS Growth 42% 47% 52%
New EPS 0.41 0.48 0.59
P/E 13x
Share Price 19.5
17
Current EPS on 10K/TTM on Yahoo Finance: 0.99
Current stock price on Yahoo Finance: 13.47
Calculate current P/E: 13.47/0.99 = 13.6x
Calculate EPS growth from annual report: 52.41%
Project new EPS: 0.99 * 1.52 = 1.50
Project new P/E based on EPS growth: 13x
Calculate new price: 13 *1.50 = 19.5
Compare new price to old price: 19.5/13.47 – 1 = 44%
18. Investor Considerations
• Investor Concerns
- Sales of new homes have declined
- Many substitutes, Strong rivalry
- It has managed to jump ranks from 47
to 13 in a year Good prospects
• Strategic Partnerships
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19. Investor Risks & Mitigation
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RISKS
General
Economic
Conditions
Increasing
Competition
Effects of
Restructuration
Plans
WRECO
Transaction
POSSIBLE MITIGATING FACTORS
Overall economy strengthening:
Decreasing Unemployment rates,
even though Fed is going to raise
interest rate
High barriers to entry
due to large start-up
capital
GROWTH STRATEGY FOR TPH
Innovations in energy-
efficient and
environmentally friendly
homes
Effectively manage assets
and maximize cash flow
and profitability
Provide strong national
platform
o Acquisition with WRECO
allows it to have wider
geographical area
Improve consumer service
to provide support for
customers at every
step.
Experienced leadership
with previous successful
solutions and ideas
TPH transformed into
one of leading home-
construction companies
Current EPS on 10K/TTM on Yahoo Finance: 0.99
Current stock price on Yahoo Finance: 13.47
Calculate current P/E: 13.47/0.99 = 13.6x
Calculate EPS growth from annual report: 52.41%
Project new EPS: 0.99 * 1.52 = 1.50
Project new P/E based on EPS growth: 13x
Calculate new price: 13 *1.50 = 19.5
Compare new price to old price: 19.5/13.47 – 1 = 44%
