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Meritage Beats 4Q Estimates

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Meritage Homes Corporation’s (MTH - Free Report) fourth quarter 2012 adjusted (for impairments and extinguishment of debt) earnings per share of 63 cents beat the Zacks Consensus Estimate of 42 cents by 50.0% on the back of robust rise in home closings, revenue, improved leverage of overhead expenses and reduced interest expenses. The company’s results also improved significantly from earnings of 6 cents in the prior-year quarter.

The company reported adjusted earnings per share of $1.29 per share in fiscal 2012 versus a loss of 15 cents in the prior year. The adjusted earnings per share beat the Zacks Consensus Estimate of 74 cents. The company reported 38.6% rise in total closing revenue of $1.19 billion in fiscal 2012, driven by 30% increase in number of homes closed and 38% rise in home closing revenue.

Total revenue in the fourth quarter of 2012 amounted to $364.6 million, up 48.2% year over year. Meritage’s home closing revenues were $364.1 million, up 48.2% from the prior-year quarter. Reported revenues beat the Zacks Consensus Estimate of $351 million. Year-over-year growth in home closing revenues was attributable to a 39% increase in the number of homes closed and a 7% hike in average closing prices, owing to a shift in mix toward higher priced homes and communities.  

Net sales orders climbed 46% year over year to 1,094 units during the quarter, reflecting sales order gains across all states. The value of net orders rose 72% to $353.9 million owing to order growth and an 18% hike in average prices. The boom in net order bookings was attributed to a stabilizing recovery in the housing market. This was backed by lower home prices and moderating interest rates as renting became a more expensive option luring buyers to new homes.  

The company closed 1,240 homes in the fourth quarter of 2012. Sales growth was highest in California, Texas and Florida. The company has started raising prices in most of its communities with market demand gaining momentum. The average selling prices of the closings stood at $294 million, up 7%.

Meritage’s backlog totaled 1,472 homes as of Dec 31, 2012, up 61% from 915 homes as of Dec 31, 2011. The value of backlog grew 93% year over year to $479.3 million in the fourth quarter of 2012, owing to stronger demand and higher prices. Cancellation rate in the quarter also improved 600 basis points to 13% of gross orders versus 19% in the prior-year quarter, driven by expectation of further price appreciations.

Adjusted home closing gross profit increased to $69.2 million, up 50.1% year over year. The increase in gross profit was driven by higher sales prices. Consequently, the company’s home closing gross margin was 19.0% in fourth quarter of 2012, up 20 basis points from the prior-year quarter.  

We have a favorable view of the fact that Meritage Homes has been witnessing significant growth in new home orders, backlogs and homes delivered for the past two quarters, gaining from the improvement in housing fundamentals.

Meritage Homes currently carries a Zacks Rank #1 (Strong Buy).

Other stocks in the homebuilding sector that are performing well and deserve a mention include MDC Holdings Inc. (MDC - Free Report) , NVR Inc. (NVR - Free Report) and Ryland Group Inc. , each carrying a Zacks Rank #1 (Strong Buy).

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