This Housing Company Will Benefit From End-Market Growth

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Mar 23, 2015

Meritage Homes (MTH, Financial) is doing well in the recovering housing market in the U.S. Meritage is undertaking some strategic moves including acquisitions to further strengthen its market position. Meritage wants to extend its footprint in other areas, so it is looking to penetrate certain key regions. Let us have a closer look at some of Meritage’s strategies and what the recovering housing market can do for it in the long run.

Well-positioned

Meritage Homes seems well positioned for 2015. The company has a strong track record and even in the past, the share price rose impressively by 8.56% soon after it reported strong results. Carrying this momentum forward, the investors are likely to expect the company to post better results in 2015. A good improvement in revenue can further add to Meritage’s glory. However, the company is worried a bit about the decline in the earnings. But the positive housing outlook is expected to subside this short term crunch.

Phoenix, Arizona stands out as a key growth market area for Meritage. The company is now trying to extend its footprints in some other potential market areas as well. Under this, Meritage’s Legendary Communities acquisition is expected to play an important role. This will open doors for Meritage in markets such as Atlanta and Georgia. This has already benefited company in the past and a leading position in Greenville, South California is a best example of it.

The way ahead

Moving ahead, Meritage is now focusing on highest quality markets to seek long term gains. It has therefore stopped entering in to the markets with limited profit potential. With this strategy, Meritage is expected to deliver stronger long term gains for its shareholders leading to good improvement in market share in the future.

However, many analysts are expecting slight dampening of the housing market in the start of the new fiscal 2015 due to hikes in the future rates. Still, some expects the housing market to be on track again in the second half of 2015. On the other hand, the recovering U.S economy is also supporting the employment sector creating ample job opportunities which will further support the homebuilding activity. Besides that, the lower oil price environment has also helped in improving the purchasing power of the customers. This will further boost the customer’s confidence which will improve home buying.

Toll Brothers can be a threat

Toll Brothers (TOL) can be a hurdle for Meritage. Toll Brothers’ shares have gained impressively over the past and with this recovering housing market, it is expected to grow more in the upcoming quarters. Toll Brothers has been a dominant luxury homebuilder in the U.S with its offerings of luxury homes for move up buyers, empty nesters and active adults. In addition, Toll Brothers is also in fairly handsome financial position as compared to Meritage with consecutive six quarters of double digit growth. Meritage has to definitely work on its strategies to counter attack Toll Brothers’ moves.

With trailing P/E of 12.57, the stock is cheap, while the forward P/E of 10.49 shows good growth in the earnings in the near term. Also, a profit margin of 6.53% is also an attractive point to the investors. Looking at these facts and statistics, Meritage Homes is a good pick as of now.