Homebuilding Revenues to Aid Meritage Homes (MTH) Q3 Earnings

Meritage Homes Corporation MTH is expected to witness higher revenues when it reports third-quarter 2020 results on Oct 21. In fact, revenues from Homebuilding — accounting for 99.7% of its total revenues — are likely to have been driven by higher home closing revenues, backed by increased deliveries.

The company has exhibited a solid performance so far this year, with the stock climbing 82.7%, having comfortably outperformed the industry’s rally of 37.1%. Meritage Homes — which shares space with D.R. Horton, Inc. DHI, Century Communities, Inc. CCS and KB Home KBH in the Zacks Building Products - Home Builders industry — has been riding high on successful execution of strategic initiatives to boost profitability and focus on entry-level LiVE.NOW homes.

Click here to know how the company’s overall Q3 performance is expected to be.

A Look at Q3 Segmental Performance

The Homebuilding segment has been benefiting from resilient housing market fundamentals in the United States buoyed by the Fed’s dovish stance, low borrowings costs and lack of available supply. Also, more demand for affordable housing from multiple demographic groups is likely to have given a boost to order growth in the third quarter. Meritage Homes has been focused on growing demand for entry-level homes with its LiVE.NOW product that addresses the need for lower-priced homes.

Meritage Homes announced in September that it has been experiencing unprecedented demand for homes, as is evident from 73% year-over-year growth in total orders for the July-August period. Importantly, the momentum continued in September as well.

The Zacks Consensus Estimate for the company’s homes closed is pegged at 2,935 units, which indicates a year-over-year increase of 21.3% and sequential growth of 6%. The Zacks Consensus Estimate for the company’s home closing revenues (accounting for 99.8% of homebuilding revenues) is pegged at $1,081 million, which indicates a 15.1% increase from the year-ago period and 4.8% sequentially.

Meanwhile, the Zacks Consensus Estimate for land closing revenues (accounting for 0.2% of homebuilding revenues) is $3.4 million, indicating an increase from $1.7 million in the year-ago period and $1.49 million in the second quarter.

Again, improving overhead leverage is expected to have boosted the company’s margins in the third quarter. Overall, it expects home closing revenues within $1-1.1 billion for the third quarter, with home closing gross margins around 21%. In the year-ago period, the company reported home closing gross margin of 19.8%.

Overall Earnings & Revenue Expectations

The Zacks Consensus Estimate for third-quarter revenues is pegged at $1,084 million, suggesting a 15.4% year-over-year increase. Also, for the quarter, the consensus estimate for earnings is pegged at $2.42 per share, implying robust 35.2% growth from $1.79 recorded in the year-ago period.

Meritage Homes — a Zacks Rank #1 (Strong Buy) company — has a strong earnings surprise history, having surpassed analysts’ expectations in 14 of the trailing 15 quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

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