It has been about a month since the last earnings report for Meritage Homes (MTH). Shares have lost about 9.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Meritage due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Meritage Homes' Q4 Earnings & Revenues Surpass Estimates
Meritage Homes reported fourth-quarter 2024 results, wherein earnings and total closing revenues topped the Zacks Consensus Estimate but declined year over year. This is the eighth consecutive quarter of earnings and revenues beat.
Meritage Homes had a strong 2024, driven by high demand for affordable, entry-level homes, which made up 91% of fourth-quarter sales. Operational efficiencies helped sustain profitability despite a decline in average sales prices. Strategic land acquisitions, including Elliott Homes, expanded its future pipeline. Yet, challenges remain, including lower average sales prices (ASPs), lower backlog, and rising lot costs, which pressured margins.
With demographic tailwinds supporting entry-level housing and a disciplined approach to land investment, Meritage Homes appears well-positioned for another solid year.
MTH’s Earnings & Revenue Discussion
Earnings per share (EPS) of $4.72 topped the Zacks Consensus Estimate by a solid 113.6%. The reported figure decreased 12% from the year-ago quarter’s reported EPS of $5.38.
Total revenues (including Total Closing revenues and Financial Services revenues) amounted to $1.62 billion, down 2.3% from $1.66 billion reported in the year-ago period.
Segment Details of MTH’s Quarterly Release
Total Closing Revenues: Total closing revenues were $1.61 billion, which declined 2% from the prior-year quarter’s level but topped the consensus mark of $1.57 billion by 2.8%.
Under the Homebuilding umbrella, home closing revenues of $1.595 billion declined 3% from the prior-year quarter’s level due to lower ASPs. Land closing revenues, however, grew 49% to $17.4 million from a year ago.
Meritage Homes reported 4,044 units of homes closed, up 2% from the year-ago quarter. The ASP of homes closing declined 5% from a year ago to $395,000 due to product and geographic mix.
Total home orders inched up 14% from the prior year to 3,304 homes. In dollars, home orders increased 10% year over year to $1.32 billion. A 4% lower ASP of orders of $400,000 due to both geographic and product mix shifts impacted growth to some extent. The average absorption pace was 3.9 per month in the quarter, up 8% from the last year.
Entry-level buyers represented 91% of sales orders compared with 88% in the year-ago period.
The quarter-end backlog totaled 1,544 units, down 39% year over year. The value of the backlog also decreased 42% year over year to $629.5 million.
Home closing gross margin contracted 200 basis points (bps) to 23.2%. This decline was driven by increased lot costs, higher use of financing incentives, and reduced leverage on fixed costs due to lower home closing revenue. However, the impact was partially offset by lower direct costs per square foot and faster construction cycle times.
Selling, general and administrative expenses — as a percentage of home closing revenues — grew 10 bps from the prior-year quarter to 10.8% owing to a tougher selling environment and commission rates.
Financial Services: The segment’s revenues rose 17% from the prior-year quarter’s level to $8.4 million.
MTH’s 2024 Highlights
For the full year, the company generated $6.4 billion in total revenues (up 4.2% year over year), with EPS rising to $21.44, an increase of 8% compared to 2023. Homes delivered were up 12% to 15,611. The ASPs of the homes delivered were $406,000, down 6% from a year ago. Gross margins were 24.9% (up 10 bps).
Meritage Homes’ Financial Position
At the end of 2024, cash and cash equivalents totaled $651.6 million, down from $921.2 million reported on Dec. 31, 2023. As of Dec. 31, 2024, approximately 65,600 lots were owned or controlled by the company (this includes 5,500 from the Elliott acquisition) compared with about 64,300 lots a year ago.
Total debt to capital was 20.6% compared with 17.9% in 2023-end. Net debt to capital was 11.7% compared with 1.9% on Dec. 31, 2023.
For 2024, net cash used by operating activities was $227.6 million against $355.6 million of net cash provided by operating activities a year ago.
During 2024, Meritage Homes paid quarterly cash dividends, totaling $108.6 million to its shareholders. It brought back 732,255 shares for $125.9 million. As of Dec. 31, 2024, $309.1 million in shares remained under the authorized share repurchase program.
MTH’s 2025 Guidance
The company expects to close between 16,250 and 16,750 homes, which would represent a modest increase from the 15,611 closed in 2024.
Revenue is projected to be between $6.6 billion and $6.9 billion, reflecting continued demand for affordable housing. However, maintaining margins will be critical as financing incentives remain a key tool for driving sales.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -7.71% due to these changes.
VGM Scores
Currently, Meritage has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Meritage has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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This article originally published on Zacks Investment Research (zacks.com).
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