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Meritage Expands in Nashville

Zacks Equity Research

One of the leading U.S. homebuilding companies, Meritage Homes Corporation (MTH), recently completed the purchase of Phillips Builders, another homebuilder based in Nashville, TN. With the acquisition, Meritage will add 500 lots and 150-200 homes by 2014 to its inventory.

The company’s Nashville homebuilding operation will continue under the Phillips Builders brand name and will be headed by Jason and Charlie Phillips, veterans with years of experience in the homebuilding business. Beginning 1952, Phillips Builders has gained a high popularity in Nashville for its high quality homes with price tags ranging from $175,000 to over $425,000.

Nashville boasts flourishing health care, publishing, banking and transportation businesses. The area is prosperous with an educated population, owing to the huge concentration of colleges and universities, excellent business opportunities and widespread industrial structure. We appreciate Meritage’s strategy to expand its operation into Nashville as the town has opportunities to grow and thus can nurture steady demand for homes in the years to come.

The company strategically focuses on acquiring new home sites. This acquisition is expected to bolster the company’s position in the highly lucrative housing market in the Southeastern region of the United States. During the past two years, the company has acquired four homebuilding businesses. Additionally, improved market conditions in the Western, Southwest and Southeast regions have accelerated Meritage’s growth.

We favor the Zacks Rank #2 (Buy) company’s ability to capitalize on the gradual recovery in the housing market by raising prices modestly and recording improved top-line growth. However, Meritage Homes faces tough competition from the resale markets.

Another homebuilder, Lennar Corporation (LEN), has established its presence in Nashville with the acquisition of 40 home sites in the Tollgate Village community. With this acquisition, Lennar now has homebuilding operations in 19 states and 46 markets across the nation.

Other stocks in the homebuilding sector that are performing well and deserve a mention include Standard Pacific Corp. (SPF) and TRI Pointe Homes, Inc. (TPH) both carrying a Zacks Rank #2 (Buy).

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