Yahoo Finance Why Is Meritage (MTH) Up 4.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Meritage Homes (MTH). Shares have added about 4.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Meritage due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Meritage Homes Q1 Earnings Beat, Orders & Backlog Up
Meritage Homes Corporation reported impressive results for first-quarter 2024. Both earnings and total closing revenues surpassed the Zacks Consensus Estimate and increased on a year-over-year basis. The upside was backed by higher deliveries.
Solid execution on its spec building and streamlined strategy helped it achieve yet another record backlog conversion rate of 138% and a return on equity of 18% during the quarter.
Earnings & Revenue Discussion
Earnings per share (EPS) of $5.06 beat the Zacks Consensus Estimate and the year-ago figure of $3.54 by 42.9%.
Total revenues (including Homebuilding and Financial Services revenues) amounted to $1.472 billion, up 14.5% from $1.285 billion reported in the year-ago period.
Segment Discussion
Homebuilding: Total closing revenues were $1.468 billion, which grew 15% from the prior-year quarter’s level of $1.26 billion and beat the consensus mark of $1.28 billion by 14.5%.
Under the Homebuilding umbrella, home closing revenues totaled $1.466 billion, increasing 16% from the prior-year quarter’s level of $1.26 billion. Land closing revenues amounted to $2.31 million, which declined 87% from $17.4 million reported in the year-ago quarter.
MTH reported 3,507 units of homes closed, up 21% from 2,897 units year over year. The ASP was 4% lower from a year ago to $418,000 due to a product mix shift. ASP increased sequentially owing to reduced utilization of rate lock financing incentives and price increases.
Total home orders rose 14% from the prior year to 3,991 homes. In dollars, home orders increased 8% year over year to $1.63 billion. A 5% lower ASP of $409,000 due to both geographic and product mix shifts impacted growth to some extent. Strong demand and the right amount of available inventory, which benefited from just an 8% cancelation rate, aided the quarterly sales order volume. Average absorptions per store was 4.9 per month, up 17% from 4.2 in the prior year. However, the average community count declined 1% year over year.
Entry-level buyers represented 91% of sales orders versus 87% in the year-ago period.
The quarter-end backlog totaled 3,033 units, down 23% year over year. The value of the backlog also decreased 29% year over year to $1.24 billion.
Adjusted home closing gross margin expanded 340 basis points (bps) to 25.8%. Selling, general and administrative expenses — as a percentage of home closing revenues — increased 10 bps to 10.4% from the prior-year quarter due to higher commission rates.
Financial Services: The segment’s revenues rose 11% from the prior-year quarter’s level to $6.35 million.
Balance Sheet
At the end of first-quarter 2024, cash and cash equivalents totaled $905.3 million compared with $921.2 million on Dec 31, 2023. At the end of March 2024, 66,400 lots were owned or controlled by the company compared with 60,900 lots a year ago.
Total debt to capital was 17.5% compared with 17.9% at 2023-end. Net debt to capital was 2% versus 1.9% on Dec 31, 2023.
Net cash provided by operating activities for the reported quarter was $81.9 million versus $124.5 million a year ago.
Recently, the company raised the quarterly cash dividend to 75 cents per share from 27 cents and paid dividends of $27.2 million in the first quarter. It repurchased 362,419 shares of its common stock for $55.9 million. As of Mar 31, 2024, $129.1 million in shares remained under the authorized share repurchase program.
2024 Outlook
Executive chairman of MTH, Steven J. Hilton, stated, “We entered the spring selling season with a healthy supply of available inventory and were able to capitalize on strong current market conditions stemming from the increasing need for housing from Millennials, Gen Z and the move-down Baby Boomers, all finding limited existing housing supply.”
MTH projects 14,500-15,000 home closings for the year, which is likely to generate home closing revenues of $6-$6.2 billion ($6.06 billion reported in 2023). Home closing gross margin is expected to be in the 24.5-25% range compared with 24.9% in 2023. It also expects EPS within $19.20-$20.70 compared with $19.93 reported in 2023. It estimates an effective tax rate of 22.5%.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 21.09% due to these changes.
VGM Scores
At this time, Meritage has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Meritage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Meritage belongs to the Zacks Building Products - Home Builders industry. Another stock from the same industry, PulteGroup (PHM), has gained 1.2% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.
PulteGroup reported revenues of $3.95 billion in the last reported quarter, representing a year-over-year change of +10.5%. EPS of $2.87 for the same period compares with $2.35 a year ago.
For the current quarter, PulteGroup is expected to post earnings of $3.20 per share, indicating a change of +6.7% from the year-ago quarter. The Zacks Consensus Estimate has changed +2.7% over the last 30 days.
PulteGroup has a Zacks Rank #1 (Strong Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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