Will Virtual Platforms Aid Meritage Homes (MTH) Q2 Earnings?

Meritage Homes Corporation MTH is slated to report second-quarter 2020 results on Jul 22, after market close.

In the last reported quarter, the company’s earnings and home closing revenues topped the Zacks Consensus Estimate by 45.2% and 8.5%, respectively, on strong volumes. Also, both the metrics improved significantly on a year-over-year basis. The company surpassed earnings estimates in 18 of the trailing 20 quarters.

Trend in Estimate Revision

The Zacks Consensus Estimate for earnings for the quarter to be reported has moved north over the past 30 days to $1.52 per share. The said figure indicates a 16% increase from the year-ago earnings of $1.31 per share. The consensus mark for revenues is $890.96 million, suggesting a 3.2% year-over-year improvement.

Meritage Homes Corporation Price and EPS Surprise

Meritage Homes Corporation Price and EPS Surprise

Meritage Homes Corporation price-eps-surprise | Meritage Homes Corporation Quote

Factors to Note

Meritage Homes has been focusing more on virtual platforms to boost customers’ engagement, as coronavirus-led shutdowns and stay-at-home orders have impacted the industry. The company has been selling, building and delivering homes by leveraging the existing digital platform and tools.

It has also been finding creative ways to interact with customers and other stakeholders. The company has been dealing with customers virtually or by arranging appointments at sales offices and Studio M design centers. This is likely to have boosted its top-line performance in the to-be-reported quarter.

Also, focus on growing demand for entry-level, first time and move-up buyers is expected to have benefited the company’s second-quarter performance. Successful execution of strategic initiatives such as boosting profitability and building homes on a spec basis is expected to have added to the positives.

The Zacks Consensus Estimate for its home closing revenues is currently pegged at $873 million, implying 1.2% year-over-year growth.

The consensus estimate for homes closed is 2,312, indicating a 2.6% year-over-year improvement. The same for total orders for the to-be-reported quarter is 2,431 units, which indicates an improvement of 20.3% year over year.

In addition to home buying activities, the company has been strengthening 24/7 mortgage pre-approval online tools that are helping customers purchase homes more quickly.

That said, it reduced the average selling price or ASP for homes to address affordability concerns, which may have weighed on its performance. The Zacks Consensus Estimate for ASP is currently pegged at $378, implying a 1.3% decrease from the year-ago reported figure.

Also, uncertainties arising from the coronavirus outbreak might have impacted the company’s order flow and backlog.

Other Projections

The Zacks Consensus Estimate for closing revenues is $4.68 million, indicating three times growth from the year-ago figure of $1.56 million. The same for financial services revenues is pegged at $4.03 million, suggesting a 3.1% year-over-year decline.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for Meritage Homes this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here as you will see below.

Earnings ESP: Meritage Homes has an Earnings ESP of -2.47%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stock Worth a Look

Here are some other companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

PotlatchDeltic Corporation PCH — which belongs to the Zacks Building Products - Wood industry — has an Earnings ESP of +774.97% and carries a Zacks Rank #2 at present.

Rayonier Inc. RYN — which belongs to the same industry — has an Earnings ESP of +124.99% and currently carries a Zacks Rank #2.

Thor Industries, Inc. THO — which belongs to the Zacks Building Products - Mobile Homes and RV Builders industry — has an Earnings ESP of +42.64% and presently carries a Zacks Rank #1.

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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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