Markets

Meritage Homes vs. Taylor Morrison: Which Stock to Bet on?

The U.S. housing industry is well poised for the rest of 2020 as the market has gradually started to reopen post coronavirus-led shutdown. Historically low mortgage rates have been driving the industry in recent times.

Overall, the market indicators seems to be back on track, defying headwinds like low inventory levels, tight lending conditions, and broad-based economic and public health risks associated with the pandemic. This is evident from the recent industry statistics, which have boosted investors’ sentiments to 53.6% for the Zacks Building Products - Home Builders industry in the past three months compared with the Zacks Construction sector and S&P 500 composite’s 31.4% and 14.9% rally, respectively.



Notable homebuilders like Meritage Homes Corporation MTH, Taylor Morrison Home Corporation TMHC, Lennar Corporation LEN and KB Home KBH remain optimistic, as these have been experiencing pent-up demand for single-family homes.

Among the industry bellwethers, let’s check out whether Meritage Homes or Taylor Morrison is a more profitable pick for investors right now. Notably, both the companies are almost neck to neck in terms of market cap and carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Determinants of the Stocks

Meritage Homes — having a market cap of $2.98 billion — engages in building and selling single-family homes for first-time and move-up buyers in historically high-growth regions of the United States. The company’s successful execution of strategic initiatives to boost profitability and focus on entry-level LiVE.NOW homes — which address the need for lower-priced homes — is expected to yield higher absorptions, aided by increased demand and an improving community count growth trajectory.

Conversely, Taylor Morrison — with a market cap of $2.79 billion — offers a diverse assortment of homes across a wide range of price points for entry-level, move-up, luxury and active adult buyers. The company designs, builds and sells single and multi-family attached and detached homes. It operates under Taylor Morrison, Darling Homes and William Lyon Signature brands. The company has been benefiting from buyouts, strategic initiatives to boost profitability and building homes on a spec basis.

Strong Brand Presence & Customer Spectrum

Although Meritage Homes is a comparatively bigger company than Taylor Morrison in terms of market cap, the latter has a large spectrum of customers as it serves luxury and active adults, along with entry-level and move-up buyers. Also, Taylor Morrison’s homebuilding segments operate under three big brand names. In contrast, Meritage Homes offers luxury homes under the Monterey Homes brand, that too in limited cases.

That said, both the companies’ customer-centric approach, and investment in land acquisition and development are encouraging.

Prospects & Stock Performance

As the coronavirus outbreak hit the industry hard, almost every homebuilder is expected to generate year-over-year low profits in 2020. However, the rate of decline may differ from company to company, depending upon the ability to cope with the current market scenario and strategies undertaken to boost performance.

For Meritage Homes, the Zacks Consensus Estimates for earnings is expected to fall 3% year over year in 2020. Taylor Morrison’s bottom line for the year is likely to decrease a whopping 41.3%. Taylor Morrison and Meritage Homes have a VGM Score of A and C, respectively.

Shares of Meritage Homes have gained 97.1% in the past three months compared with Taylor Morrison’s 81.5% rally. But compared with the industry’s collective performance, Meritage Homes fares better than Taylor Morrison.



Hence, Meritage Homes is a clear winner in terms of earnings growth expectation and price movement despite poor VGM score.

A Look at Stocks’ Profitability & Valuation

Return on Equity in the trailing 12 months for Meritage Homes is 15.5% compared with Taylor Morrison and the industry’s 12.4% and 12.7%, respectively. Markedly, Meritage Homes provides better returns to investors than Taylor Morrison and the industry.

The trailing 12-month price-to-earnings multiple for Meritage Homes and Taylor Morrison is 10.17 and 6.74, respectively, compared with 10.03 for the industry. Meritage Homes’ shares are costlier than Taylor Morrison and the industry.

After having a look at these valuation metrics, we can say that Taylor Morrison is the cheaper of the two stocks but provides lower returns to investors.

Our Take

Meritage Homes appears to be a comparatively better investment option than Taylor Morrison. Both the companies remain optimistic about the overall homebuilding growth trend, given solid demand for homes, offsetting supply-side woes.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


Click to get this free report

KB Home (KBH): Free Stock Analysis Report


Lennar Corporation (LEN): Free Stock Analysis Report

Meritage Homes Corporation (MTH): Free Stock Analysis Report

Taylor Morrison Home Corporation (TMHC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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