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Meritage Homes (MTH) Up on Q2 Earnings Beat, Raises View

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Meritage Homes Corporation’s (MTH - Free Report) shares increased 7.1% in the after-hours trading session on Jul 28, after it reported second-quarter 2021 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. Also, the top and bottom lines improved significantly on a year-over-year basis. Total revenues and earnings topped the Zacks Consensus Estimate for the 11th straight quarter.

Steven J. Hilton, executive chairman of Meritage Homes said, “As we get closer to attaining our mid-2022 goal of 300 communities, we exceeded our own expectations and had 226 active communities at June 30, 2021, reflecting an 11% sequential quarterly increase from 203 and, we believe, the start of meaningful growth.”

Earnings & Revenue Discussion

Meritage Homes reported earnings of $3.46 per share, which topped the Zacks Consensus Estimate of $2.38 by 26.4% and surged 83.2% 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.

Meritage Homes Corporation Price, Consensus and EPS Surprise

Meritage Homes Corporation Price, Consensus and EPS Surprise

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

Total revenues (including total Closing revenues and Financial Services revenues) amounted to $1.283 billion, up 23.7% from the year-ago level.

Segment Discussion

Total Closing (Homebuilding) Revenues: Total closing revenues of $1.278 billion topped analysts’ expectation by 10.5% and increased 24% from the prior-year quarter, backed by stronger market demand and lower mortgage interest rates. Home closing revenues totaled $1,264.6 million, up 23% year over year. The upside can be attributed to an 18% increase in closings to 3,273 homes, marking the best second quarter of closings in the company’s history. Average sales price (ASP) gained 4% year over year, given persistent strength in housing demand despite a strategic shift toward the entry-level market.

Total home orders decreased 2% from the prior-year level to 3,542 homes due to 10% decline in average communities, partly offset by a 9% rise in absorptions. High demand was witnessed for Meritage's entry-level LiVE.NOW product that accounted for 81% of second-quarter orders compared with 70% in the prior-year quarter.

Meanwhile, value of net orders increased 16% year over year to $1.4999 billion. Quarter-end backlog totaled 5,509 units, up 25% year over year. Value of the backlog also increased 41% year over year to $2.32 billion, with a hike of 12% in ASP.

For the second quarter, home closing gross margin increased 590 basis points (bps) to 27.3% from the year-ago period. The improvement stemmed from higher pricing and fixed cost leverage, given increased closings. Selling, general and administrative expenses — as a percentage of home closing revenues — declined 110 bps year over year to 9.2%.

Land closing revenues amounted to $13 million, up 771% from the year-ago quarter.

Financial Services: The segment’s revenues increased 27% from the prior-year level to $5.7 million.

Balance Sheet

As of Jun 30, 2021, cash and cash equivalents totaled $684.4 million, down from $745.6 million at 2020-end.

Total debt to capital at quarter-end was 30.4% compared with 30.3% at 2020-end. Net debt to capital was 15.4% versus 10.5% on Dec 31, 2020.

2021 Guidance Raised

For 2021, Meritage Homes now expects 12,500-13,000 home closings versus 11,700-12,700 expected earlier. Home closing revenues are now expected in the range of $5-$5.25 billion versus $4.55-$4.85 billion projected before. Also, it projects home closing gross margins to be 27.5% versus 25% of earlier expectation for 2021. Effective tax rate is expected within 22.5-23% versus earlier expectation of 23%.
    
Meanwhile, 2021 earnings per share are projected in the range of $18.55-$19.45 versus $13.75-$14.75 expected before. The Zacks Consensus Estimate for the same is pegged at $14.7 per share.

Zacks Rank & Peer Releases

Meritage Homes currently has a Zacks Rank #5 (Strong Sell).

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

PulteGroup Inc. (PHM - Free Report) — which currently holds a Zacks Rank #3 (Hold) — reported second-quarter 2021 results, wherein earnings met the Zacks Consensus Estimate but revenues missed the same. Nonetheless, both earnings and revenues grew year over year, buoyed by solid housing market momentum as well as limited inventory of new and existing homes.

D.R. Horton, Inc. (DHI - Free Report) — which currently carries a Zacks Rank #3 — reported impressive results for third-quarter fiscal 2021. Both the top and bottom lines topped the Zacks Consensus Estimate and improved significantly on a year-over-year basis.

NVR, Inc. (NVR - Free Report) — which also holds a Zacks Rank #3 — reported second-quarter 2021 results, wherein both earnings and homebuilding revenues surpassed the Zacks Consensus Estimate as well as improved significantly from the year-ago period.


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