Back to top

Image: Bigstock

Meritage (MTH) Down 5.2% Since Last Earnings Report: Can It Rebound?

Read MoreHide Full Article

A month has gone by since the last earnings report for Meritage Homes (MTH - Free Report) . Shares have lost about 5.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Meritage due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Meritage Homes Q4 Earnings Top, Upbeat View

Meritage Homes Corporation came up with solid fourth-quarter 2021 results. Earnings surpassed the Zacks Consensus Estimate and improved significantly on a year-over-year basis. Revenues also improved from the year-ago period on the back of a strong housing market, thanks to the ongoing shortage of housing inventory, low-interest rates and favorable homebuying trends from millennials and baby boomers.

Encouragingly, MTH recorded the highest fourth-quarter sales orders and second-highest quarterly home closings.

Phillippe Lord, the chief executive officer of Meritage Homes, said, “We anticipate that our strategy of focusing on the entry-level and first move-up markets will enable us to continue leveraging these ongoing demographic demand trends.”

Earnings & Revenue Discussion

Meritage Homes reported earnings of $6.25 per share, which topped the Zacks Consensus Estimate of $6.04 by 3.5% and increased 57% year over year. The uptrend was due to solid pricing power, expanded gross margin and improved overhead leverage.

Total revenues (including Homebuilding and Financial Services revenues) amounted to $1.50 billion, up 6.3% from the year-ago level backed by stronger market demand.

Segment Discussion

Homebuilding: Total closing revenues totaled $1.5 billion, up 6.3% from the prior-year level of $1.41 billion. Home closing revenues totaled $1,499 million, up 6.4% year over year. The upside can be attributed to a 13% increase in average sales price or ASP. Volumes fell 6% year over year.

During the quarter, the company reported homes closed of 3,526 units, down 5.8% year over year. Total home orders increased 6% from the prior year to 3,367 homes, backed by a 24% increase in average active community count, partially offset by low absorptions.

Entry-level buyers represented 82% of total active communities compared with 72% in the year-ago period.

Meanwhile, the value of net orders increased almost 20% year over year to $1.46 billion. Quarter-end backlog totaled 5,679 units, up 21.6% year over year. Value of backlog also increased 38.8% year over year to $2.52 billion.

For the quarter, home closing gross margin increased 500 basis points (bps) to 29%. Selling, general and administrative expenses — as a percentage of home closing revenues — improved 80 bps from the prior year. The uptrend was mainly driven by continued leverage of fixed costs on higher home closing revenues, lower broker commissions, and the benefits of technology on sales and marketing efforts.

Land closing revenues amounted to $12 thousand, significantly down from $0.78 million in the year-ago quarter.

Financial Services: The segment’s revenues slipped 3.2% from the prior-year level to $5.58 million.

Balance Sheet

At 2021-end, cash and cash equivalents totaled $618.3 million compared with $745.6 million on Dec 31, 2020.

Total debt to capital at quarter-end was 27.6% compared with 30.3% at 2020-end. Net debt to capital was 15.1% versus 10.5% on Dec 31, 2020.

2021 Highlights

Total closing revenues for 2021 came in at $5.12 billion, up 14% from the 2020 level on 8% higher home closing volume and 6% higher ASP resulting from a favorable pricing environment. Earnings of $19.29 per share rose a notable 74% year over year.

Total sales orders of 13,808 homes were in line with 2020. For 2021, entry-level homes represented 81% of sales orders compared with 68% for 2020.

For 2021, home closing gross margin improved 580 bps to 27.8% compared with 22% in 2020. SG&A expenses (as a percentage of home closing revenues) improved 80 bps to 9.2% compared with 10% in 2020.

2022 Guidance

For 2022, Meritage Homes expects 14,500-15,500 home closings versus 12,801 in 2021. Home closing revenues are expected in the range of $6.1-6.5 billion, up from $5.1 billion in 2021. It projects home closing gross margins of 27.8% and an effective tax rate of 25%. Meanwhile, 2022 earnings per share are projected in the range of $23.15-24.65.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -5.26% due to these changes.

VGM Scores

Currently, Meritage has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Meritage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Meritage Homes Corporation (MTH) - free report >>

Published in