Meritage Homes Corporation MTH is scheduled to release its fourth-quarter 2023 results on Jan 31, after the market closes.

During the previous quarter, the company surpassed the Zacks Consensus Estimate, with its earnings topping by 17.3%. Homebuilding revenues also outperformed the consensus by 4.1%. Despite a 16% earnings decline, total revenues, comprising Homebuilding and Financial Services revenues, grew 2.5% year over year. Furthermore, total closing revenues increased by 2% compared to the previous year.

In the last 22 quarters, Meritage Homes has beaten the consensus estimate a remarkable 21 times.

Estimate Revisions Trend

The Zacks Consensus Estimate for the company’s fourth-quarter 2023 earnings per share decreased from $5.23 to $5.18 over the past 30 days. This represents a 26.9% decline from the prior year’s $7.09 per share.

Meritage Homes Corporation Price and EPS Surprise

Meritage Homes Corporation’s Price and EPS Surprise | Meritage Homes Corporation Quote

The consensus mark for revenues is set at $1.52 billion, indicating a 23.5% year-over-year decline.

Factors at Play

Meritage Homes’ fourth-quarter Homebuilding revenues, accounting for 99.6% of total revenues in 2022, are expected to have declined due to challenging affordability conditions resulting from higher rates and ongoing economic uncertainties.

In this tough U.S. housing market climate, characterized by soaring mortgage rates, Meritage Homes anticipates stable housing demand for the upcoming quarter.

Despite an expected year-over-year decrease in total home closing revenues, sequential growth is anticipated due to robust demand for entry-level and first move-up homes, driven by the scarcity of existing homes on the market.

However, Financial Services revenues, constituting 0.4% of total revenues in 2022, are foreseen to have declined compared to the previous year’s quarter.

For the fourth quarter of 2023, our model predicts a 24.2% decline in Homebuilding revenues and an 8.4% decline in Financial services revenues, amounting to $1.51 billion and $6.7 million, respectively, compared to the previous year.

The company expects home closing to be in the range of 3,500-3,700 units in the to-be-reported quarter, down from 4,540 units reported a year ago. Also, home closing revenues are anticipated to be in the $1.45-$1.53 billion range, down from $1.98 billion in the year-ago period.

It is expected that home closing units will see a 20.5% decrease year over year to 3,608 units, with revenues declining by 24.1% to $1.51 billion. The anticipated home closing average selling price (ASP) is $417,140, reflecting a 4.5% decrease year over year.

Geographically, the anticipated home closing ASP in the West, Central, and East regions is projected to decrease by 12%, 1.2%, and 2.7% to $479,010, $394,510, and $385,970, respectively, compared to the previous year.

We also project a 29.1% year-over-year decrease in land closing revenues to $5.2 million.

Margins

The high labor costs expected during the fourth quarter are likely to impact MTH’s earnings and margins negatively. However, the company’s increased focus on a solid spec strategy and performance-driving initiatives are expected to offset some of these challenges.

In consideration of the above challenges, the company anticipates diluted earnings per share to fall within $4.84-$5.43, with the home closing gross margin expected to be around 25-26%, signaling a drop from the previous year’s value of 25.2% at the midpoint. We predict a 400 basis points improvement in home closing gross margin, reaching 25.6% year over year.

Backlogs and Home Orders

Given the aforementioned economic uncertainties, it is anticipated that the total backlog will increase by 5.6% to 3,518 units, but the total backlog value will decline by 1.6% year over year to $1.5 billion.

Geographically, it is expected that home orders in the West, Central, and East regions will increase by 129.2% to 1,059 units, 112.3% to 1,304 units, and 57.8% to 1,155 units, respectively, compared to the previous year.

Insights from the Zacks Model

Our model predicts that MTH will outperform earnings expectations for the upcoming quarter. This is because a stock requires a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) to achieve this feat.

Earnings ESP: MTH has an Earnings ESP of +2.85%. You can identify the best stocks to buy or sell before their report through our Earnings ESP Filter.

Zacks Rank: It currently holds a Zacks Rank #3.

Other Stocks With the Right Combination

There are other companies in the Zacks Construction sector with a favorable combination, according to our model, that are likely to exceed earnings estimates for the upcoming quarter.

Louisiana-Pacific Corporation (LPX) has an Earnings ESP of +6.64% and a Zacks Rank #3 at present. You can view the complete list of today’s Zacks #1 Rank stocks here.

LPX’s anticipated earnings for the upcoming quarter are expected to decrease by 14.8% year over year. The company has surpassed earnings expectations in three of the last four quarters, with an average surprise of 98.3%.

Vulcan Materials Company (VMC) presently has an Earnings ESP of +1.85% and a Zacks Rank #3.

VMC has outperformed the consensus mark in three of the last four quarters and is projected to achieve a 25.9% year-over-year growth in earnings for the upcoming quarter.

Floor & Decor Holdings, Inc. (FND) currently holds an Earnings ESP of +7.37 and a Zacks Rank #2.

FND’s anticipated earnings for the upcoming quarter are poised to decrease by 57.8% year over year. The company has surpassed earnings expectations in two of the last four quarters, met expectations in one, and missed in the other, with an average surprise of 4.9%.

Stay updated on future earnings announcements with the Zacks Earnings Calendar.

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