Meritage Homes Corporation’s MTH continuous focus on building homes for entry-level, first-time and move-up buyers has been yielding positive results. This is evident from the company’s total order growth in the first two months of third-quarter 2019.
Orders through the first two months of third-quarter 2019 grew 24% year over year to 1,549 units. The growth was mainly due to higher absorption per community on slightly fewer communities than a year ago.
Meritage Homes remains focused on growing demand for entry-level homes with its LiVE.NOW product that addresses the need for lower-priced homes, given affordability concerns. The successful execution of strategic initiatives to boost profitability and its focus on entry-level LiVE.NOW homes are major upsides. Meritage Homes is continuously building homes on a spec basis for LiVE.NOW. communities. Notably, since millennials (an 80 million+ market, according to the Census Bureau) are now showing a tendency to set up homes, demand is likely to pick up, which will lead to higher volumes.
Notably, in second-quarter 2019, 41% of total communities and 52% of orders were entry level compared with 34% and 44%, respectively, in the year-ago period. 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.
Further, the company remains optimistic about second-half 2019 results on the back of an improving demand trend for homes and communities, along with reducing interest rates.
Shares of Meritage Homes have jumped more than 89% so far this year compared with its industry’s 40.4% rally. The outperformance can 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, Taylor Morrison Home Corporation TMHC and D.R. Horton, Inc. DHI. 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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