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Why Meritage Homes Stock Popped 10% on Thursday

By Rich Smith – Updated Apr 25, 2019 at 8:17PM

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With earnings more than doubling in Q4, maybe we should have expected that.

What happened

Homebuilder Meritage Homes (MTH 0.70%) reported its fiscal Q4 and full-year 2018 earnings last night, and this stock beat earnings with a stick. Sales expected to be no better than $953.6 million came in above $1 billion, while earnings on those sales -- $1.91 per share -- easily eclipsed analyst expectations for $1.51 per share.

This news is sending Meritage shares soaring in Thursday trading -- up 9.8% as of 2:25 p.m. EST.

Workers read construction plans in front of a house.

Meritage has a plan to outperform despite rising interest rates. Image source: Getty Images.

So what

Meritage sold 11% more homes in Q4 2018 (and in 2018 as a whole) than it had in the equivalent period one year ago. Revenues grew 8% in the quarter and 9% for the year.

Of course, the best news of all in this earnings report was the earnings themselves. For Q4, Meritage grew its earnings 120% year over year, capping a superb year that saw earnings soar 64% to $5.58 per diluted share.

Now what

CEO Steven Hilton noted that "the strong demand" that Meritage saw "early in the year waned in the later months of 2018 as rising interest rates and home prices caused buyers to delay their home purchasing decisions."

While this might sound like bad news for the year ahead, Hilton noted that "demand for affordable entry-level homes continued to outpace the move-up market." Accordingly, Meritage is focusing its efforts on "entry-level communities for the Millennial generation, as well as Baby Boomers looking to move down into a new home." With this focus, Meritage believes it's "well positioned to address what is expected to be the strongest part of the market for the next decade."

At a share price of less than eight times earnings, I'd say Meritage stock looks pretty well positioned to outperform for investors as well.

Check out the latest Meritage Homes earnings call transcript.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Meritage Homes. The Motley Fool has a disclosure policy.

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