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Meritage Homes Corporation Message Board

  • snoboarder1125 snoboarder1125 Jul 26, 2007 9:21 PM Flag

    Value Play

    With current assets 6x current liabilities this one's going to stick around.
    Land values need to fall 30+% before MTH is priced at tangible book.
    Using options and sub-contractors allows MTH to leverage operations - works out really well when the market is growing, limits the risk in a down market.
    Housing inventory is beginning to lessen, and while the market will be weak for potentially years, MTH's strong balance sheet, solid business model, and border-state location will help them through a difficult market. While there's still the potential for more downside movement, barring a recession investors with a multiple year horizon will do very well with MTH.

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    • But the PV isn't $68... it's $20....$2.2B EV to be exact, per XEC's most recent 10-K, page 16....subtract $500MM net debt from that figure and you have $1.7B, about half the current sp.

      But go ahead... use fantasy numbers if you want... you didn't get those numbers from Mcdep, did you? LOL

    • baboy Which is it ? Either you can't read or you can't do simple math.

      If XEC is selling at $38 (thirty-eight ) and the net present value per share is $68 ( sixty-eight) which number is higher? Does that mean that the $38 is a higher number than $68? Is it just that any number higher than your IQ ( 50??) is incomprehensible?

      Those energy stocks ( all up today by the way) are selling at about half- thats 50%- ( a lower number) than what they are worth.

    • How many times do you need to be reminded that those assets are 1) illiquid; and 2) decreasing in value? What's more, those assets were purchased with borrowed money that is not going down, but rather, is getting larger and demands maintenance.

      There is absolutely nothing positive about the situation here. At best, this stock trades sideways. More likely, it continues heading down.

    • yes to that poster who said cisco - drugs man etc are all the same idiot- there just cant be that many different idiots. The book value is irrelevant as the real value of the land is low and getting lower. See my post about energy in this thread for better investment ideas.

    • Strong Sell!

    • This will see single digits soon. The Housing Market that MTH made there money in is gone forever! Gone are the days of 30 to 40 % profit margins. When the market does come back in 2012 profit margins will be in the 4 to 8 % range where they belong. Unfortunately the builders will have to wait 5 more years to see it! This one is gone!

    • You know a lot of those current assets are homes they can't sell, so I wouldn't hang on my hat on that. Also, contrary to statements that they have a strong balance sheet, MTH's balance sheet continues to deteriorate. Not only have inventories continued to swell, but both debt and payables have increased while cash has dwindled.

      And there is also a huge credibility gap with management. These guys were predicting strong EPS just last quarter, at a time when just about every rational analyst saw continued weakness.

      Hilton was completely wrong and I think he has lost the confidence of analysts and institutional investors. At least, he should have.

    • That you Hilton?

      • 2 Replies to cesium409
      • Do you really expect land values to drop by 30%?
        Sub-prime lenders account for 6-7% of revenue, so limited risk there. Some prime borrowers will be hurting, but it won't be hugely significant to MTH's business.

        The average estimate among economists is that there is a 16% chance of a recession in the next 12 months. I think that's a reasonable estimate, given that there is an unprecedented global boom, with much of the growth occuring in developing countries. But let's just say there's a 20% chance of recession, and that in the event of a recession MTH goes bankrupt. Your expected value for this is .2(-19) = -3.8. If the economy avoids a recession, MTH is likely to trade (within a year or 2) at 1.5 x book value. This past quarter writes off 4 ot 5 bucks, and is supposed to be the worst of it. Let's say that another 4 or 5 bucks gets written off so that book value is 30. @ 1.5 b.v. this 45 share price. The expeccted value of this is .8(45-19)=20.8. Adding the expected value of the recession and not recession we get an e.v. of 17.

        That is a conservative estimate for several reasons. MTH might not go bankrupt in a recession. HB p/book values have typically traded in a range of 1 - 2. 1.5 might be a conservative estimate, especially given that MTH has higher ROE and margins than most homebuilders.

      • No!!! I am the real Hilton!!!

        MTH has limited its exposure to a prolonged downturn with options. $170MM controls 75% of its land. They could write that off ($4/sh after tax), still have a decent debt/equity ratio, and be down to a year's supply of land.

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