Meritage Homes Orders Increase Y/Y

One of the leading homebuilding companies in the U.S., Meritage Homes Corporation (MTH - Snapshot Report) recently released preliminary data reporting home orders for the months of July and August, 2012.

The company received orders for 374 homes in the month of July 2012, up 17% year over year. In August 2012, the number of home orders increased to 410 homes, marking a 52% year-over-year increase. The total number of homes ordered in the months of July and August stand at 784, up 33% year over year.

Meritage Homes expects to deliver about 4,043 homes in fiscal 2012, thus leading to strong revenue and earnings growth. The company intends to expand its operations to the Southeastern region of the U.S. The cities in this region have immense potential for economic growth, so there should be steady demand for homes going forward.

The company is also investing in well-positioned and high-priced land and new communities in the most desirable submarkets, in order to ensure profits as the market gets stronger.

Meritage closed 1,042 homes in the second quarter of 2012 versus 856 closings in the prior-year quarter. The sales growth was highest in California and Florida, followed by Colorado and Arizona.

Net sales orders climbed 49% year over year to 1,353 units during the quarter, reflecting sales order gains across all states except Nevada. This was the strongest sales order growth for Meritage since the second quarter of 2008. With demand for homes getting stronger, the company has started raising prices in most of the communities. The value of net orders rose 63% to $385.8 million owing to order growth and a 10% hike in average prices. Meritage had 151 total active communities at the end of June, 2012 compared with 145 active communities at the end of June, 2011.

We currently have a Neutral recommendation on Meritage Homes Corporation. The stock carries a Zacks #2 Rank (a short-term ‘Buy’ rating). We appreciate the company’s ability to capitalize on the gradual recovery in the housing market by recording top-line growth and raising prices modestly. However, Meritage Homes still faces tough competition from the resale markets.