Why Meritage Homes Stock Surged 22% in July

The homebuilder is enjoying robust sales of its entry-level homes.

Joe Tenebruso
Joe Tenebruso
Aug 11, 2019 at 7:58PM
Industrials

What happened

Shares of Meritage Homes (NYSE:MTH) popped more than 20% last month, according to data provided by S&P Global Market Intelligence, after the homebuilding company delivered strong second-quarter results. 

So what

Meritage reported home closing revenue of $863 million. Its earnings per share, meanwhile, checked in at $1.31. Both of these figures were significantly above analysts' estimates for revenue and EPS of $805 million and $1.03, respectively.

Meritage closed on 2,253 homes in the second quarter, up 5% from the year-ago period. Better still, orders for new homes jumped 22% year over year to 2,735, showing that Meritage is enjoying robust demand for its homebuilding services.

Green toy houses on top of rising stacks of gold coins.

Image source: Getty Images.

Moreover, Meritage CEO Steven Hilton gave some bullish commentary on the state of the U.S. housing market. "We believe the demand we've seen throughout the extended spring selling season reflects sustained positive macroeconomic factors for the housing industry," Hilton said.

Hilton also stated that mortgage rates, which have fallen significantly in recent weeks, should provide a positive catalyst for home sales. "We are encouraged by the outlook for interest rates and optimistic that demand for our homes and communities will remain strong," he said.

Now what

Rising home values have led to fewer low-priced existing homes for sale. And due to rising labor and raw material costs, many homebuilders have shifted their focus to producing higher-end homes. Together, these factors have created a shortage of entry-level homes on the market. 

Meritage is seizing this opportunity. In recent years, the company has shifted more of its production capacity toward building starter homes. In turn, Meritage is now in prime position to help provide a solution to the nation's entry-level home shortage -- and its sales and profits are benefiting accordingly.