Continues focus on building homes for entry-level, first-time and move-up buyers is anticipated to boost Meritage Homes Corporation’s (MTH - Free Report) performance over the long haul. Notably, its strategic shift to a pure-play entry-level and first-move-up builder is gaining traction.
This is evident from the recent opening of the Greenville community of the Parkview Glen, situated at 221 Walking Stick Way, Pelzer, SC. Also, it announced the opening of Pearland Place, a new move-in community in Pearland, TX.
Particularly designed to meet the increasing demand among first-time buyers, both the communities are laced with various high-end features and energy-efficient capabilities.
This seventh-largest public homebuilding company is a leader in building energy-efficient homes. On top of that, it has been receiving ENERGY STAR Partner of the Year for Sustained Excellence Award every year since 2013 from the U.S. Environmental Protection Agency for innovative and industry-leading energy-saving solutions.
Community Opening Spree Bodes Well
Meritage Homes is continuously building homes on a spec basis for the LiVE.NOW product, which addresses the need for lower-priced homes, despite prevailing affordability concerns. Notably, in second-quarter 2019, 41% of total reported communities and 52% of orders were entry level compared with 34% and 44%, respectively, in the year-ago period. This reflects the company’s intention of focusing more on serving those first-time buyers who want to escape rents.
Markedly, it has been undertaking strategic initiatives to boost performance. The company is particularly focused on increasing gross margin and maximizing profits on every sale. Evidently, in the second quarter, total orders improved 21.6% and value of net orders grew 13.7% from the year-ago level. Notably, quarterly order volume touched a 13-year record high, driven by a 19% better absorption pace and marginal rise in average community count.
Backed by the above-mentioned moves, it expects home closings within 8,700-9,100 units in 2019. Notably, the mid-point of the guided range is higher than the year-ago reported figure of 8,531 homes.
Notably, it has reduced the average selling price or ASP for the homes in order to address the needs of millennials and baby boomers who want affordable homes, and highly desirable communities.
Shares of Meritage Homes have gained 78.9% so far this year compared with its industry’s 37% rally. The outperformance caan be attributed to the company’s impressive earnings surprise trend, having surpassed the Zacks Consensus Estimate in 14 of the trailing 15 quarters. A strong brand presence, and innovation and strategies relating to entry-level and first-move-up communities should drive the stock’s performance in the upcoming quarters as well.
Zacks Rank & Other Key Picks
Currently, Meritage Homes sports a Zacks Rank #1 (Strong Buy). Other top-ranked stocks in the same space include M/I Homes, Inc. (MHO - Free Report) , Taylor Morrison Home Corporation (TMHC - Free Report) and D.R. Horton, Inc. (DHI - Free Report) . While M/I Homes and Taylor Morrison sport a Zacks Rank #1, D.R. Horton carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
M/I Homes and Taylor Morrison surpassed earnings estimates in each of the trailing four quarters, with the average being 11.9% and 41.8%, respectively.
D.R. Horton’s long-term earnings are expected to grow 11%.
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