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We expect homebuilding company Meritage Homes Corporation (MTH - Snapshot Report) to beat expectations when it reports fourth quarter 2012 results on Jan 31.

Why a Likely Positive Surprise?

Our proven model shows that Meritage Homes is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method) is at +4.76%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank #1 (Strong Buy): Note that stocks with a Zacks Rank #1, #2 and #3 have a significantly higher chance of beating earnings. The sell rated stocks (Zacks Rank #4 and #5) should never be considered going into an earnings announcement.  

The combination of Meritage Homes’ Zacks Rank #1 (Strong Buy) and +4.76% ESP makes us very confident in looking for a positive earnings beat on Jan 31.

What is Driving the Better Than Expected Earnings?  

The rising demand for new homes has led to a favorable situation in the housing market, where inventory levels are dropping and prices are moving up. Meritage Homes has been witnessing significant growth in new home orders, backlogs and homes delivered for the past two quarters, gaining from the improvement in housing fundamentals.

The company delivered impressive surprises of 30.30% in third quarter 2012 and 160.0% in second quarter 2012 driven by strong growth in both net orders (volume) and average prices. The company is also expected to benefit from its focus on well positioned and high priced land, and new communities in the most desirable sub-markets.

Other Stocks to Consider  

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

MDC Holdings Inc. (MDC - Snapshot Report), Earnings ESP of +11.63% and Zacks Rank #1 (Strong Buy).   

NVR Inc. (NVR - Snapshot Report), Earnings ESP of +10.22% and Zacks Rank #1 (Strong Buy).

Ryland Group Inc. (RYL - Snapshot Report), Earnings ESP of +6.00% and Zacks Rank #2 (Buy).

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