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Meritage (MTH) Up 1.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Meritage Homes (MTH - Free Report) . Shares have added about 1.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Meritage due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Meritage Homes’ Q1 Revenues & Earnings Beat, Backlog Up

Meritage Homes Corporation reported first-quarter 2021 results, with earnings and revenues surpassing the Zacks Consensus Estimate. Also, the top and the bottom line improved significantly on a year-over-year basis. Total revenues and earnings topped the Zacks Consensus Estimate for the 10th straight quarter.

Earnings & Revenue Discussion

Meritage Homes reported earnings of $3.44 per share, which topped the Zacks Consensus Estimate of $2.47 by 39.3% and surged 88% year over year. The upside can be primarily attributed to solid home closing volume, increase in pricing power, expanded gross margin and improved overhead leverage.
Total revenues (including Homebuilding and Financial Services revenues) amounted to $1.09 billion, up 20.3% from the year-ago quarter’s level. The uptick was backed by stronger market demand and lower mortgage interest rates.

Segment Discussion

Homebuilding: The segment’s revenues in the first quarter totaled $1083.8 million, up 20.3% from the prior-year quarter’s level of $901 million. Home closing revenues totaled $1,080 million, up 21.3% year over year. The upside can be attributed to a 25% increase in volumes. Average sales price (or ASP) fell 3% year over year due to a strategic shift in the entry-level market.

During the first quarter, the company reported homes closed of 2,890 units, up 25% year over year. Total home orders increased 11% from the prior-year level to 3,458 homes, backed by a 35% rise in absorptions. High demand was witnessed for Meritage's entry-level LiVE.NOW product that accounted for almost 76% of first-quarter orders compared with 61% in the prior-year quarter. Tennessee generated the highest absorptions in the quarter.

Meanwhile, value of net orders increased 14.3% year over year to $1.35 billion. Quarter-end backlog totaled 5,240 units, up 47% year over year. Value of the backlog also increased 50% year over year, with a hike of 2% in ASP.

During the first quarter, home closing gross margin increased 470 basis points (bps) to 24.7% from 20% reported in the year-ago quarter. The improvement stemmed from strategic streamlining of operations. Selling, general and administrative expenses — as a percentage of home closing revenues — declined 90 bps year over year to 9.8%.

Land closing revenues amounted to $3.8 million, down 64.1% from $10.6 million in the year-ago quarter.

Financial Services: The segment’s revenues increased 21.4% from the prior-year quarter’s level to $4.8 million.

Balance Sheet

As of Mar 31, 2021, cash and cash equivalents totaled $716.4 million compared with $745.6 million as on Dec 31, 2020.

At quarter-end, the company had nearly 58,000 total lots owned or under control compared with 41,500 at the end of fourth-quarter 2020.

Total debt to capital at the end of the quarter was 29.2% compared with 30.3% at 2020-end. Net debt to capital was 10.9% at Mar 31, 2021 compared to 10.5% on Dec 31, 2020.

Q2 Outlook

For the second quarter of fiscal 2021, the company expects 2,800-3,100 home closings with anticipated revenues of $1.1-$1.2 billion. Notably, Meritage Homes anticipates the home closing margins around 25%. Diluted earnings per share are expected between $3.05 and $3.35, whereas the Zacks Consensus Estimate for second-quarter 2021 earnings is pegged at $2.81.

2021 Guidance

For 2021, Meritage Homes expects 11,700-12,700 home closings with anticipated revenues in the range of $4.55-$4.85 billion. Also, it projects home closing gross margins around 25% for 2021. Effective tax rate is expected near about 23.0%.
    
Meanwhile, 2021 earnings per share are projected in the range of $13.75-$14.75. The Zacks Consensus Estimate for the same is pegged at $11.51 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 8.43% due to these changes.

VGM Scores

At this time, Meritage has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Meritage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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