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On January 12, Zacks Investment Research upgraded homebuilding company Meritage Homes Corporation (MTH - Snapshot Report) to a Zacks Rank #1 (Strong Buy), driven by consistent strong performance for the past two quarters.

Why the Upgrade?  

Meritage Homes Corporation has been witnessing increasing earnings estimates, driven by solid third 2012 performance. The company delivered impressive surprises of 30.30% in third quarter 2012 and 160.0% in second quarter 2012.

Moreover, estimates are continuously rising, reflecting expectations for significantly higher year-over-year earnings growth rates in fiscal 2013 and 2014. The long-term expected earnings growth rate for this stock is 7.67%. 

Meritage Homes reported fiscal third-quarter (ended September 30) results on October 25. The company’s third quarter 2012 adjusted earnings of 43 cents beat the Zacks Consensus Estimate of 33 cents by 30.3% on the back of robust new order growth. The results also improved significantly from a loss of 10 cents in the prior-year quarter.

Total revenue in the third quarter of 2012 amounted to $342.6 million, up 57.5% year-over-year. Reported revenue beat the Zacks Consensus Estimate of $342 million. Year-over-year growth in home closing revenue was attributable to a 43% increase in the number of homes closed and an 8% hike in average closing prices, owing to a shift in mix toward higher priced homes and communities.  

The strong performance in third quarter 2012 was attributed to a stabilizing recovery in the housing market. This was backed by moderating interest rates as renting became a more expensive option luring buyers to new homes.

The Zacks Consensus Estimate for fiscal 2013 increased 5.7% to $2.05 per share as most of the estimates were revised higher over the last 90 days.

Other Stocks to Consider

Other companies with a favorable Zacks Rank and worth considering include Lennar Corporation (LEN - Analyst Report) and MDC Holdings Inc. (MDC - Snapshot Report), both carrying a Zacks Rank #1 (Strong Buy), and PulteGroup Inc. (PHM - Analyst Report), and Hovnanian Enterprises Inc. (HOV - Snapshot Report) both carrying a Zacks Rank #2 (Buy).
 

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