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Meritage Homes (MTH) Sharpens Competitive Edge: Here's How
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Higher mortgage rates and rising home prices are definitely taking a toll on signing activity in the housing market. Nonetheless, Meritage Homes Corporation (MTH - Free Report) is one of the homebuilders that has seen no slowdown in demand and remains on track to grow the community count through 2022.
Shares of Meritage Homes Corporation, a Scottsdale, AZ, homebuilder, have lost 15.6% in the past year. However, it has outperformed the Zacks Building Products - Home Builders industry’s 25.1% decline. In fact, MTH shares have risen 3.1% over the past three months, outperforming the industry’s 1.4% decrease.
Image Source: Zacks Investment Research
The 2022 earnings estimates for this Zacks Rank #2 (Buy) company have moved 2.7% upward over the past 60 days. This positive trend signifies bullish analysts’ sentiments, indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s delve deeper into the major driving factors.
Affordable Homes: Meritage Homes remains focused on growing demand for entry-level homes with its LiVE.NOW product that addresses the need for lower-priced homes, given the rising interest rates and home prices. The successful execution of strategic initiatives to boost profitability, along with focus on entry-level LiVE.NOW homes boosted the upside.
During the first-quarter 2022 earnings call, Phillippe Lord, the CEO of MTH, said, "With interest rates increasing, we believe that our affordable entry-level and first move-up homes that offer “surprisingly more” allow us to expand our customer base to include those that are being priced out of move-up communities and consider our homes an attractive alternative. Our mid-year goal of a 300 community count is within reach. We continue to carefully navigate the still-constrained operating environment by expanding our trade base and strengthening critical relationships.”
Robust Earnings Trend: MTH has an impressive earnings surprise trend, with its earnings surpassing the Zacks Consensus Estimate in 25 of the trailing 26 quarters. The trend is likely to continue in the near term as well, courtesy of its robust results for first-quarter 2022, where it marked the highest quarterly sales order volume, second-highest first-quarter home closings and highest quarterly home closing gross margin along with the fifth sequential quarter of community count growth.
Earnings surged 68% year over year for the period to $5.79 per share. The uptrend can be attributed to higher pricing, expanded gross margin, improved overhead leverage and a lower outstanding share count in the quarter. A strong brand presence and strategies relating to entry-level and first-move-up communities are providing a boost to the stock’s performance.
Solid 2022 Expectation: For 2022, the company expects 14,500-15,500 home closings compared with 12,801 in 2021. Home closing revenues are expected in the range of $6.5-$6.9 billion, up from $5.1 billion in 2021. It projects home closing gross margins in the low 28% range, up from the 2021 level of 27.8%. Meanwhile, 2022 earnings per share are projected in the range of $26.30-$27.90.
The Zacks Consensus Estimate for 2022 earnings of $27.52 per share indicates 42.7% year-over-year growth. The solid growth rate depicts the stock's promising future.
Higher ROE: MTH’s superior return on equity (ROE) is also indicative of its growth potential. The company’s ROE currently stands at 28.2%, which is higher than the industry’s 22.2%. This indicates efficiency in using shareholders’ funds and the ability to generate profit with minimum capital usage.
Other Top-Ranked Stocks in the Construction Sector
Primoris Services Corporation (PRIM - Free Report) , currently carrying a Zacks Rank #1, provides a wide range of construction, fabrication, maintenance, replacement and engineering services.
PRIM’s 2022 earnings are likely to rise 19.4%. The company’s earnings estimates have increased to $2.59 per share from $2.49 over the past 60 days.
KBR, Inc. (KBR - Free Report) , currently carrying a Zacks Rank #2, provides professional services and technologies, across the asset and program life cycle within government services and hydrocarbons industries, worldwide. Its mission-critical government services, high-end and differentiated government business work, strong margin performance, proprietary technology solutions and a significant increase in backlog (particularly in Government Solution) are expected to boost 2022 earnings.
KBR’s 2022 earnings are likely to rise 7.9%. The company has seen a 0.4% upward estimate revision for 2022 earnings in the past 60 days.
AECOM (ACM - Free Report) , currently carrying a Zacks Rank #2, is a leading solutions provider for supporting professional, technical and management solutions for diverse industries across end markets like transportation, facilities, government and those in environmental, energy and water businesses.
AECOM’s expected earnings growth rate for 2022 is 21.6%. The consensus mark for its 2022 earnings has moved up to $3.43 per share from $3.40, in the past 60 days.
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Meritage Homes (MTH) Sharpens Competitive Edge: Here's How
Higher mortgage rates and rising home prices are definitely taking a toll on signing activity in the housing market. Nonetheless, Meritage Homes Corporation (MTH - Free Report) is one of the homebuilders that has seen no slowdown in demand and remains on track to grow the community count through 2022.
Shares of Meritage Homes Corporation, a Scottsdale, AZ, homebuilder, have lost 15.6% in the past year. However, it has outperformed the Zacks Building Products - Home Builders industry’s 25.1% decline. In fact, MTH shares have risen 3.1% over the past three months, outperforming the industry’s 1.4% decrease.
Image Source: Zacks Investment Research
The 2022 earnings estimates for this Zacks Rank #2 (Buy) company have moved 2.7% upward over the past 60 days. This positive trend signifies bullish analysts’ sentiments, indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s delve deeper into the major driving factors.
Affordable Homes: Meritage Homes remains focused on growing demand for entry-level homes with its LiVE.NOW product that addresses the need for lower-priced homes, given the rising interest rates and home prices. The successful execution of strategic initiatives to boost profitability, along with focus on entry-level LiVE.NOW homes boosted the upside.
During the first-quarter 2022 earnings call, Phillippe Lord, the CEO of MTH, said, "With interest rates increasing, we believe that our affordable entry-level and first move-up homes that offer “surprisingly more” allow us to expand our customer base to include those that are being priced out of move-up communities and consider our homes an attractive alternative. Our mid-year goal of a 300 community count is within reach. We continue to carefully navigate the still-constrained operating environment by expanding our trade base and strengthening critical relationships.”
Robust Earnings Trend: MTH has an impressive earnings surprise trend, with its earnings surpassing the Zacks Consensus Estimate in 25 of the trailing 26 quarters. The trend is likely to continue in the near term as well, courtesy of its robust results for first-quarter 2022, where it marked the highest quarterly sales order volume, second-highest first-quarter home closings and highest quarterly home closing gross margin along with the fifth sequential quarter of community count growth.
Earnings surged 68% year over year for the period to $5.79 per share. The uptrend can be attributed to higher pricing, expanded gross margin, improved overhead leverage and a lower outstanding share count in the quarter. A strong brand presence and strategies relating to entry-level and first-move-up communities are providing a boost to the stock’s performance.
Solid 2022 Expectation: For 2022, the company expects 14,500-15,500 home closings compared with 12,801 in 2021. Home closing revenues are expected in the range of $6.5-$6.9 billion, up from $5.1 billion in 2021. It projects home closing gross margins in the low 28% range, up from the 2021 level of 27.8%. Meanwhile, 2022 earnings per share are projected in the range of $26.30-$27.90.
The Zacks Consensus Estimate for 2022 earnings of $27.52 per share indicates 42.7% year-over-year growth. The solid growth rate depicts the stock's promising future.
Higher ROE: MTH’s superior return on equity (ROE) is also indicative of its growth potential. The company’s ROE currently stands at 28.2%, which is higher than the industry’s 22.2%. This indicates efficiency in using shareholders’ funds and the ability to generate profit with minimum capital usage.
Other Top-Ranked Stocks in the Construction Sector
Primoris Services Corporation (PRIM - Free Report) , currently carrying a Zacks Rank #1, provides a wide range of construction, fabrication, maintenance, replacement and engineering services.
PRIM’s 2022 earnings are likely to rise 19.4%. The company’s earnings estimates have increased to $2.59 per share from $2.49 over the past 60 days.
KBR, Inc. (KBR - Free Report) , currently carrying a Zacks Rank #2, provides professional services and technologies, across the asset and program life cycle within government services and hydrocarbons industries, worldwide. Its mission-critical government services, high-end and differentiated government business work, strong margin performance, proprietary technology solutions and a significant increase in backlog (particularly in Government Solution) are expected to boost 2022 earnings.
KBR’s 2022 earnings are likely to rise 7.9%. The company has seen a 0.4% upward estimate revision for 2022 earnings in the past 60 days.
AECOM (ACM - Free Report) , currently carrying a Zacks Rank #2, is a leading solutions provider for supporting professional, technical and management solutions for diverse industries across end markets like transportation, facilities, government and those in environmental, energy and water businesses.
AECOM’s expected earnings growth rate for 2022 is 21.6%. The consensus mark for its 2022 earnings has moved up to $3.43 per share from $3.40, in the past 60 days.