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Shares of Meritage Homes Corporation (MTH - Snapshot Report) reached a 52-week high of $50.63 on Thursday, May 2, 2013 gaining momentum from solid first quarter results on Apr 24. The closing price of the shares on May 2 was $50.12.  

Share Price Drivers

Meritage Homes reported strong first-quarter 2013 results on the back of double-digit increases in home sales, orders, and prices.

Meritage Homes’ first-quarter 2013 earnings per share of 32 cents beat the Zacks Consensus Estimate of 25 cents by 28.0%. Earnings per share also improved significantly from a loss of 15 cents a share recorded in the prior-year quarter buoyed by robust homebuilding revenues.

Total homebuilding revenue in the first quarter of 2013 amounted to $336.4 million, up 64.6% year over year. Reported revenues beat the Zacks Consensus Estimate of $316 million by 6.5%. Meritage’s home closing revenues were $330.7 million, up 62.1% from the prior-year quarter. Year-over-year growth in home closing revenues was attributable to a 39% increase in the number of homes closed and a 17% hike in average closing prices.

The company benefited from stabilizing recovery in the housing market. This was backed by low interest rates and high affordability as renting became a more expensive option luring buyers to new homes. In fact, markets in California, Colorado, the Carolinas and Florida witnessed strongest order growth during the quarter.

Assuming that housing demand will continue to increase attributable to the improvement in overall economy and  job market and low mortgage rates, the company expects 40% to 45% year-over-year increase in revenues for each of the remaining three quarters of 2013.

Earnings per share are expected in the range of $2.20 to $2.45 for 2013, which marks a 350% – 400% increase in pre-tax earnings. The company expects to end 2013 with 185 active communities. The company further intends to invest up to $600 million in land development in 2013.

The robust quarterly results and a promising outlook for the upcoming quarters led to an upward movement in estimates. In fact, the Zacks Consensus Estimate for 2013 and 2014 increased a respective 1.3% and 3.1% to $2.31 and $3.67 over the last 7 days.

Meritage Homes carries a Zacks Rank #1 (Strong Buy).  

Other stocks in the homebuilding sector that are performing as well as Meritage and therefore deserve a mention include D. R. Horton Inc. (DHI - Analyst Report), Ryland Group Inc. (RYL - Snapshot Report) and MDC Holdings Inc. (MDC - Snapshot Report). All the three companies carry a Zacks Rank #1 (Strong Buy).

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