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Why Is Meritage (MTH) Up 2.7% Since Last Earnings Report?
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It has been about a month since the last earnings report for Meritage Homes (MTH - Free Report) . Shares have added about 2.7% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
Meritage Homes Q4 Earnings & Revenues Beat, Orders Up
Meritage Homes reported better-than-expected results for fourth-quarter 2023. Both earnings and total closing revenues surpassed the Zacks Consensus Estimate.
Earnings and total revenues declined on a year-over-year basis. Also, total closing revenues fell due to reduced home prices and volume, along with increased financing incentives and higher lot costs.
Earnings & Revenue Discussion
Earnings of $5.38 per share topped the Zacks Consensus Estimate of $5.18 by 3.9% but declined 24% year over year from $7.09 reported a year ago.
Total revenues (including Homebuilding and Financial Services revenues) amounted to $1.66 billion compared with $1.99 billion reported in the year-ago period.
Segment Discussion
Homebuilding: Total closing revenues were $1.65 billion, down 17% from the prior-year quarter’s level. The metric, however, beat the consensus mark of $1.52 billion by 8.6%.
Under the Homebuilding umbrella, home closing revenues totaled $1.64 billion, declining 17% from the prior-year quarter’s level of $1.98 billion. Land closing revenues amounted to $11.7 million, increasing 59% from $7.3 million reported in the year-ago quarter.
MTH reported 3,951 units of homes closed, down 13% from 4,540 units year over year. The average sales price (ASP) was 5% lower from a year ago to $415,000 due to costlier financing incentives and geographic mix. Our estimate for the metric was 3,608 units for $417,140 ASP.
Total home orders rose 60% from the prior year to 2,892 homes on healthy homebuying demand owing to below-7% interest rates and recovering consumer confidence. We estimated home orders to be up 94.6% year over year. In dollars, home orders increased 70% year over year to $1.2 billion on a 6% higher ASP of $415,000. Average absorptions per store was 3.6 per month, up 64% from 2.2 per month in the previous year. However, the average community count declined 1% year over year.
Entry-level buyers represented 88% of sales orders for the current as well as the year-ago period.
The quarter-end backlog totaled 2,549 units, down 23% year over year. The value of the backlog also decreased 29% year over year to $1.09 billion.
Adjusted home closing gross margin contracted 300 bps to 25.4%. Selling, general and administrative expenses — as a percentage of home closing revenues — increased 230 bps to 10.7% from the prior-year quarter due to higher performance-based compensation costs, higher commission rates and reduced leverage from lower home closing revenue.
Financial Services: The segment’s revenues fell 2% from the prior-year quarter’s level to $7.2 million.
2023 Highlights
Total closing revenues for 2023 came in at $6.06 billion, down 2% from the 2022 level on a 1% lower home closing volume and a 2% low ASP. Earnings of $19.93 per share declined 25% year over year.
Total home orders of 13,193 homes in 2023 were higher than the 11,759 reported in 2022. Home order value also grew 8% from 2022.
For 2023, the home closing gross margin contracted 400 bps to 24.9% compared with 28.9% in 2022. SG&A expenses (as a percentage of home closing revenues) were up 190 bps to 10.2% compared with 8.3% in 2022.
Balance Sheet
At the end of 2023, cash and cash equivalents totaled $921.2 million compared with $861.6 million on Dec 31, 2022. At the end of 2023, 64,300 lots were owned or controlled by the company compared with 63,200 lots a year ago.
Total debt to capital was 17.9% compared with 22.6% at 2022-end. Net debt to capital was 1.9% versus 6.8% on Dec 31, 2022.
Net cash provided by operating activities for 2023 was $355.6 million versus $405.3 million a year ago.
MTH repurchased 437,882 shares of its common stock for $59.1 million in 2023. As of Dec 31, 2023, $185 million in shares remained under the authorized share repurchase program.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -5.5% due to these changes.
VGM Scores
At this time, Meritage has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Meritage has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Meritage belongs to the Zacks Building Products - Home Builders industry. Another stock from the same industry, M.D.C. Holdings, Inc. , has gained 0.1% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
M.D.C. Holdings, Inc. reported revenues of $1.35 billion in the last reported quarter, representing a year-over-year change of -11.4%. EPS of $1.56 for the same period compares with $1.08 a year ago.
M.D.C. Holdings, Inc. is expected to post earnings of $1.12 per share for the current quarter, representing a year-over-year change of +3.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +5.3%.
M.D.C. Holdings, Inc. has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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Why Is Meritage (MTH) Up 2.7% Since Last Earnings Report?
It has been about a month since the last earnings report for Meritage Homes (MTH - Free Report) . Shares have added about 2.7% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.
Meritage Homes Q4 Earnings & Revenues Beat, Orders Up
Meritage Homes reported better-than-expected results for fourth-quarter 2023. Both earnings and total closing revenues surpassed the Zacks Consensus Estimate.
Earnings and total revenues declined on a year-over-year basis. Also, total closing revenues fell due to reduced home prices and volume, along with increased financing incentives and higher lot costs.
Earnings & Revenue Discussion
Earnings of $5.38 per share topped the Zacks Consensus Estimate of $5.18 by 3.9% but declined 24% year over year from $7.09 reported a year ago.
Total revenues (including Homebuilding and Financial Services revenues) amounted to $1.66 billion compared with $1.99 billion reported in the year-ago period.
Segment Discussion
Homebuilding: Total closing revenues were $1.65 billion, down 17% from the prior-year quarter’s level. The metric, however, beat the consensus mark of $1.52 billion by 8.6%.
Under the Homebuilding umbrella, home closing revenues totaled $1.64 billion, declining 17% from the prior-year quarter’s level of $1.98 billion. Land closing revenues amounted to $11.7 million, increasing 59% from $7.3 million reported in the year-ago quarter.
MTH reported 3,951 units of homes closed, down 13% from 4,540 units year over year. The average sales price (ASP) was 5% lower from a year ago to $415,000 due to costlier financing incentives and geographic mix. Our estimate for the metric was 3,608 units for $417,140 ASP.
Total home orders rose 60% from the prior year to 2,892 homes on healthy homebuying demand owing to below-7% interest rates and recovering consumer confidence. We estimated home orders to be up 94.6% year over year. In dollars, home orders increased 70% year over year to $1.2 billion on a 6% higher ASP of $415,000. Average absorptions per store was 3.6 per month, up 64% from 2.2 per month in the previous year. However, the average community count declined 1% year over year.
Entry-level buyers represented 88% of sales orders for the current as well as the year-ago period.
The quarter-end backlog totaled 2,549 units, down 23% year over year. The value of the backlog also decreased 29% year over year to $1.09 billion.
Adjusted home closing gross margin contracted 300 bps to 25.4%. Selling, general and administrative expenses — as a percentage of home closing revenues — increased 230 bps to 10.7% from the prior-year quarter due to higher performance-based compensation costs, higher commission rates and reduced leverage from lower home closing revenue.
Financial Services: The segment’s revenues fell 2% from the prior-year quarter’s level to $7.2 million.
2023 Highlights
Total closing revenues for 2023 came in at $6.06 billion, down 2% from the 2022 level on a 1% lower home closing volume and a 2% low ASP. Earnings of $19.93 per share declined 25% year over year.
Total home orders of 13,193 homes in 2023 were higher than the 11,759 reported in 2022. Home order value also grew 8% from 2022.
For 2023, the home closing gross margin contracted 400 bps to 24.9% compared with 28.9% in 2022. SG&A expenses (as a percentage of home closing revenues) were up 190 bps to 10.2% compared with 8.3% in 2022.
Balance Sheet
At the end of 2023, cash and cash equivalents totaled $921.2 million compared with $861.6 million on Dec 31, 2022. At the end of 2023, 64,300 lots were owned or controlled by the company compared with 63,200 lots a year ago.
Total debt to capital was 17.9% compared with 22.6% at 2022-end. Net debt to capital was 1.9% versus 6.8% on Dec 31, 2022.
Net cash provided by operating activities for 2023 was $355.6 million versus $405.3 million a year ago.
MTH repurchased 437,882 shares of its common stock for $59.1 million in 2023. As of Dec 31, 2023, $185 million in shares remained under the authorized share repurchase program.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -5.5% due to these changes.
VGM Scores
At this time, Meritage has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Meritage has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Meritage belongs to the Zacks Building Products - Home Builders industry. Another stock from the same industry, M.D.C. Holdings, Inc. , has gained 0.1% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
M.D.C. Holdings, Inc. reported revenues of $1.35 billion in the last reported quarter, representing a year-over-year change of -11.4%. EPS of $1.56 for the same period compares with $1.08 a year ago.
M.D.C. Holdings, Inc. is expected to post earnings of $1.12 per share for the current quarter, representing a year-over-year change of +3.7%. Over the last 30 days, the Zacks Consensus Estimate has changed +5.3%.
M.D.C. Holdings, Inc. has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.