February IPO stock Millrose Properties is the IBD Stock of the Day. Shares of the housing market play are in a buy zone after breaking out of a base Wednesday.
Aside from architecture firm OFA Group, Millrose is the only company in IBD's homebuilding industry group that doesn't actually build homes. Yet, it is one of the best-performing stocks in the group, up more than 32% since it started trading on the NYSE on Feb. 5. Just five days after that, the company was added to the S&P SmallCap 600 index.
The company was spun off from homebuilder Lennar and specializes in the acquisition, preparation and sale of land to builders, who in turn do the work of building homes.
It's an innovative strategy that Millrose says offers homebuilders a chance to keep their assets light and gives them easy access to ready-to-build land. The capital from sales is recycled into future land acquisitions for homebuilders, providing customers with uninterrupted access to capital, according to the company's prospectus.
It offers advantages over traditional land banks, where sites may not have all building permits and carry other risks.
Not Tied To Housing Market Speculation
Millrose generates income from monthly option fee payments on capital deployed. It's a revenue model that reduces the traditional risk from land speculation or the execution of development projects.
For the first quarter of 2025, the company earned 39 cents per share on $82.7 million in option fees.
In March, Millrose reported "strong progress" on making deals outside of Lennar, closing about $250 million in transactions since the spinoff at yields exceeding 11%. Millrose said it expects at least $1 billion in such deals for the full year.
Citing its momentum, Millrose forecast earnings of 65-to-68 cents a share for the quarter ended June 30. It also forecast quarterly earnings per share of 67-69 cents by year-end. Millrose has an IBD Composite Rating of 50 out of 99. The low score is mainly due to losses by its predecessor company.
The company will pay its first quarterly dividend, 69 cents a share, on Tuesday to shareholders of record as of July 3. That equates to a yield of 9.2% according to the company's stock price on Thursday.
In SEC filings, Millrose says it intends to become a real estate investment trust this year. REITs pay no federal tax in return for passing 90% of taxable income through to shareholders.
Millrose will announce second-quarter results before the market opens on July 31. So far, there is minimal analyst coverage of the company, and no quarterly estimates in FactSet.
High-Yield IPO Stock Breaks Out
The IPO stock broke out of a base-on-base formation Wednesday and is slightly above the 28.99 buy point, according to MarketSurge pattern recognition. Volume was 157% above average on the breakout, a positive sign. The relative strength line is near new highs, as well. Millrose shares cleared an earlier base at a 26.99 entry on May 14.
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Millrose stock has a 21-day average true range (ATR) of 2.61%. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks with a high ATR tend to make large price moves that can trigger sell rules. Stocks with lower ATRs tend to make more incremental moves.
With the S&P 500 and Nasdaq now in a power trend, investors can buy stocks with ATRs up to 8%, though they should be wary of being too concentrated in high-octane names.
