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Why Is Meritage Homes (MTH) Up 1.3% 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 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 its most recent earnings report in order to get a better handle on the important drivers.
Meritage Homes Beats Q2 Earnings & Revenue Estimates
Meritage Homes came up with a solid performance in the second quarter of 2018. Earnings and revenues surpassed the Zacks Consensus Estimate, courtesy of a solid housing market scenario. Meanwhile, successful execution of strategic initiatives to boost profitability along with focus on entry-level LiVE.NOW. homes led to the upside.
Earnings & Revenue Discussion
The company reported earnings of $1.31 per share, surpassing the Zacks Consensus Estimate of $1.10 by 19.1%. Earnings increased 34% from the year-ago profit level of 98 cents.
Homebuilding revenues of $872.4 million surpassed the consensus mark of $833 million and also increased 9.4% from $797.8 million a year ago. Notably, LiVE.NOW. made up 44% of its orders in the second quarter compared with just 35% a year ago.
Home Closings and Orders
Homebuilding revenues of $877.5 million increased 9.4% from the prior-year quarter. Home closing revenues increased 9.4% year over year to $872.4 million, aided by higher home deliveries. Land/lot closing revenues were $5.1 million, up from $4.2 million a year ago.
Home closings increased 12% to 2,139 homes and 9% to $872.4 million in value. The company registered growth across all regions comprising Central and East, except West. Average selling price for the homes closed, however, slipped 3% in the quarter. Total orders increased 5% to 2,250 homes on continued improvement. Orders increased across all operating regions (barring West). The value of net orders grew 4% to $918 million. Quarter-end sales order backlog (under contract) increased 6% to 3,619 homes. Backlog value increased 6% to $1.53 billion.
Revenues at the Financial Services segment increased 6.1% to $3.9 million.
Margins
Home sales gross margin expanded 60 basis points (bps) year over year to 18.3% in the quarter. The improvement was due to higher margins in the East region. SG&A expenses increased 30 bps from the prior-year quarter to 10.9%, as a percentage of home closing revenues. Pre-tax earnings came in at $71.2 million, reflecting an increase of 13% from the year-earlier period. This uptick stemmed from higher home closing revenues and home closing gross margin.
Balance Sheet
Meritage Homes’ cash and cash equivalents totaled $169.4 million as of Jun 30, 2018, compared with $170.7 million on Dec 31, 2017.
Debt-to-capital ratios were 43.8% as of Jun 30, 2018, and 44.9% on Dec 31, 2017, respectively. Meanwhile, net debt-to-capital ratios were 40.4% and 41.4%, respectively, in the said time frames, within management’s targeted range.
2018 Guidance Reiterated
The company anticipates home closing revenues within $3.5-$3.65 billion. Homes closings are expected within 8,450-8,850 units.
The company now expects home sales gross margin between 18% and 18.5% (versus at least 18% expected earlier), buoyed by strong second-quarter results. Pre-tax profit is now expected between $295 million and $315 million (up from $285-$305 million expected earlier).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.37% due to these changes.
VGM Scores
Currently, Meritage has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Based on our scores, the stock is equally suitable for value, growth, and momentum investors.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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Why Is Meritage Homes (MTH) Up 1.3% 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 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 its most recent earnings report in order to get a better handle on the important drivers.
Meritage Homes Beats Q2 Earnings & Revenue Estimates
Meritage Homes came up with a solid performance in the second quarter of 2018. Earnings and revenues surpassed the Zacks Consensus Estimate, courtesy of a solid housing market scenario. Meanwhile, successful execution of strategic initiatives to boost profitability along with focus on entry-level LiVE.NOW. homes led to the upside.
Earnings & Revenue Discussion
The company reported earnings of $1.31 per share, surpassing the Zacks Consensus Estimate of $1.10 by 19.1%. Earnings increased 34% from the year-ago profit level of 98 cents.
Homebuilding revenues of $872.4 million surpassed the consensus mark of $833 million and also increased 9.4% from $797.8 million a year ago. Notably, LiVE.NOW. made up 44% of its orders in the second quarter compared with just 35% a year ago.
Home Closings and Orders
Homebuilding revenues of $877.5 million increased 9.4% from the prior-year quarter. Home closing revenues increased 9.4% year over year to $872.4 million, aided by higher home deliveries. Land/lot closing revenues were $5.1 million, up from $4.2 million a year ago.
Home closings increased 12% to 2,139 homes and 9% to $872.4 million in value. The company registered growth across all regions comprising Central and East, except West. Average selling price for the homes closed, however, slipped 3% in the quarter. Total orders increased 5% to 2,250 homes on continued improvement. Orders increased across all operating regions (barring West). The value of net orders grew 4% to $918 million. Quarter-end sales order backlog (under contract) increased 6% to 3,619 homes. Backlog value increased 6% to $1.53 billion.
Revenues at the Financial Services segment increased 6.1% to $3.9 million.
Margins
Home sales gross margin expanded 60 basis points (bps) year over year to 18.3% in the quarter. The improvement was due to higher margins in the East region. SG&A expenses increased 30 bps from the prior-year quarter to 10.9%, as a percentage of home closing revenues. Pre-tax earnings came in at $71.2 million, reflecting an increase of 13% from the year-earlier period. This uptick stemmed from higher home closing revenues and home closing gross margin.
Balance Sheet
Meritage Homes’ cash and cash equivalents totaled $169.4 million as of Jun 30, 2018, compared with $170.7 million on Dec 31, 2017.
Debt-to-capital ratios were 43.8% as of Jun 30, 2018, and 44.9% on Dec 31, 2017, respectively. Meanwhile, net debt-to-capital ratios were 40.4% and 41.4%, respectively, in the said time frames, within management’s targeted range.
2018 Guidance Reiterated
The company anticipates home closing revenues within $3.5-$3.65 billion. Homes closings are expected within 8,450-8,850 units.
The company now expects home sales gross margin between 18% and 18.5% (versus at least 18% expected earlier), buoyed by strong second-quarter results. Pre-tax profit is now expected between $295 million and $315 million (up from $285-$305 million expected earlier).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.37% due to these changes.
VGM Scores
Currently, Meritage has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
Based on our scores, the stock is equally suitable for value, growth, and momentum investors.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Meritage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.