Third Avenue Small-Cap Value Fund on Taylor Morrison Home Corporation
Thesis
Third Avenue purchased Taylor Morrison because its valuation appeared disconnected from the value of the underlying business. The company had a strategically located land bank, attractive customer positioning, a strong balance sheet and a record of repurchasing shares at attractive prices. Consistent profitability and a shift toward a more asset-light operating model were supporting impressive book-value-per-share compounding. Shortly after the Fund purchased the shares, Berkshire Hathaway agreed to acquire Taylor Morrison for a premium of slightly more than 25 percent. The Fund had intended to own the company for years, but the takeover crystallized part of the perceived undervaluation much sooner.
“The company is also extremely well-financed and the company has been an aggressive buyer of its own stock at attractive prices.”
Key risks
- Takeover completion risk
- Cyclicality in U.S. housing and land values