Will Low Selling Price Ail Meritage Homes (MTH) Q4 Earnings?

Meritage Homes Corporation (NYSE:MTH) is slated to report fourth-quarter 2019 results on Jan 30, after market close.

In the last reported quarter, the company’s earnings topped the Zacks Consensus Estimate by 19.9% and 2.3%, respectively, on strong homebuying activity. In fact, the company surpassed earnings estimates in 15 of the trailing 16 quarters.

Trend in Estimate Revision

The Zacks Consensus Estimate for earnings for the quarter to be reported has been unchanged at $1.92 per share over the past 60 days. The said figure indicates a 0.5% increase from the year-ago earnings of $1.91 per share. The consensus mark for revenues is $1.02 billion, suggesting a 2.4% year-over-year improvement.

Meritage Homes Corporation Price and EPS Surprise

Factors at Play

Meritage Homes’ focus on growing demand for entry-level and first-move-up buyers is expected to have benefited fourth-quarter earnings. The successful execution of strategic initiatives, such as boosting profitability and building homes on a spec basis, is expected to benefit its results in the quarter to be reported.

The Zacks Consensus Estimate for the company’s home closing revenues is currently pegged at $1,023 million, implying 2.7% and 8.9% year-over-year and sequential growth, respectively.

In order to meet the ongoing affordability concern, the company reduced the average selling price or ASP for homes. Although this strategy is likely to have improved buyers traffic, the same is expected to have weighed on its performance.

The Zacks Consensus Estimate for ASP is currently pegged at $384, implying 3.5% and 1% decrease from the year-ago reported figure and third-quarter 2019, respectively.

The company is inclined toward maximizing profits on every sale. To this end, it has been making homes out of speculations that promise faster delivery at a lower cost. This strategy is expected to have boosted its bottom-line performance during the quarter.

That said, higher land/labor costs — which have been a pressing concern for the U.S. homebuilding industry over the last few quarters — are expected to get reflected in the company’s bottom line.

Other Projections

In fourth-quarter 2019, homes closed are likely to be 2,664, indicating a 61.2% year-over-year improvement. Total orders in the to-be-reported-quarter are expected to improve 21.7% year over year to 2,011 units.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for Meritage Homes this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below.

Earnings ESP: Meritage Homes — which shares space with KB Home (NYSE:KBH) and Lennar Corporation (NYSE:LEN) in the Zacks Building Products - Home Builders industry — has an Earnings ESP of 0.00%. 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 #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stock Worth a Look

M.D.C. Holdings, Inc. (NYSE:MDC) — which belongs to the same industry — has the right combination of elements to post an earnings beat in their respective quarters to be reported, according to our model. M.D.C. Holdings has an Earnings ESP of +2.42% and carries a Zacks Rank #2.

Zacks Top 10 Stocks for 2020

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2020?

Last year's 2019 Zacks Top 10 Stocks portfolio returned gains as high as +102.7%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.

Access Zacks Top 10 Stocks for 2020 today >>