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Resilient Housing to Aid Meritage Homes' (MTH) Q3 Earnings

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Meritage Homes Corporation’s (MTH - Free Report) is slated to announce third-quarter 2020 results on Oct 21, after the closing bell.

In the last reported quarter, the company’s earnings and revenues beat the Zacks Consensus Estimate by 56.6% and 15.9%, respectively. On a year-over-year basis, earnings and revenues increased 82% and 19.4%, respectively, due to solid home closing revenues.

It has a strong earnings surprise history, having surpassed analysts’ expectations in 14 of the trailing 15 quarters.

Trend in Estimate Revision

For the quarter to be reported, the Zacks Consensus Estimate for earnings per share has been upwardly revised by 0.4% to $2.42 over the past seven days. The estimated figure indicates an increase of 35.2% from $1.79 per share reported in the year-ago quarter. The consensus mark for revenues is pegged at $1.08 billion, suggesting a 15.5% increase from the year-ago reported figure of $939.2 million.

Meritage Homes Corporation Price and EPS Surprise

Meritage Homes Corporation Price and EPS Surprise

Meritage Homes Corporation price-eps-surprise | Meritage Homes Corporation Quote

Factors to Note

Meritage Homes’ third-quarter revenues are expected to have increased from the year-ago level, buoyed by strong housing market fundamentals backed by lower borrowing costs.

The improved sales trends are evident from solid monthly U.S. housing sales data. Markedly, pending home sales maintained its growth trend in August, marking the fourth uninterrupted month of positive contract activity, according to the National Association of Realtors or NARs. Also, existing home sales hit the highest level in August since December 2006. It also marked three consecutive months of sales gains. Furthermore, new single-family homes were recorded in levels not seen since before the Great Recession. There were 1.01 million newly-built homes sold in August, according to the Census Bureau’s monthly report. Notably, the metric has been rising for four consecutive months.

Meritage Homes announced in September that it has been experiencing unprecedented demand for homes, as is evident from 73% year-over-year growth in total orders for the July-August period. Importantly, the momentum continued in September as well.

Also, more demand for affordable housing from multiple demographic groups is likely to have given a boost to order growth in the third quarter. Meritage Homes remains focused on growing demand for entry-level homes with its LiVE.NOW product that addresses the need for lower-priced homes.

The Zacks Consensus Estimate for the company’s homes closed is pegged at 2,935 units, which indicates a year-over-year increase of 21.3% and sequential growth of 6%.

The Zacks Consensus Estimate for the company’s home closing revenues is pegged at $1,081 million, which indicates a 15.1% increase from the year-ago period and 4.8% sequentially.

However, land and labor costs have been a pressing concern for the company. Also, it noted that there have been some supply chain-related issues due to the COVID-19 pandemic. These are likely to exert pressure on the company’s third-quarter results as well.

It introduced lower average selling price or ASP model in order to address the needs of millennials and baby boomers. However, this move is likely to have hampered its bottom-line growth trajectory. The Zacks Consensus Estimate for the company’s ASP of homes closed is pegged at $368,000, which indicates a 5.2% decrease from the year-ago period.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Meritage Homes in the quarter to be reported. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the changes of an earnings beat. That’s exactly the case here.

Earnings ESP: The company has an Earnings ESP of +2.34%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Meritage Homes carries a Zacks Rank #1.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks With Favorable Combination

Here are some other companies in the Zacks Building Products - Home Builders industry, which according to our model also have the right combination of elements to post an earnings beat in their respective quarters to be reported.

D.R. Horton, Inc. (DHI - Free Report) has an Earnings ESP of +9.40% and a Zacks Rank #2.

Century Communities, Inc. (CCS - Free Report) has an Earnings ESP of +7.53% and holds a Zacks Rank #1.

NVR, Inc. (NVR - Free Report) has an Earnings ESP of +6.79% and a Zacks Rank #2.

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