Core Viewpoint - Meritage Homes (NYSE: MTH) was initially recommended as a Long Idea in June 2020, and the bullish thesis has been reiterated multiple times since then. Despite a year-to-date decline of approximately 15%, the stock is considered more attractive now [1]. Summary by Relevant Sections - Investment Thesis: The stock of Meritage Homes has seen a decline of about 15% year-to-date, which presents a more attractive investment opportunity according to the company's ongoing bullish outlook [1].

Core Thesis - Meritage Homes (MTH) is positioned to gain market share and deliver homes efficiently while returning capital to shareholders, despite a challenging housing market outlook [1][2] Industry Overview - The U.S. housing market is currently undersupplied by 3.7 million units, contributing to decreased housing affordability [3] - The average sales price of new homes in the U.S. increased from approximately $332,000 in February 2020 to around $404,000 in March 2025 [5] Company Performance - Meritage Homes has increased its market share of U.S. new one-family homes from 1.3% in 2017 to 2.3% in the TTM [6] - The company recorded its second-highest first-quarter orders and closings in 1Q25, with 61% of homes closed sold within the same quarter, up from 48% the previous year [8][10] - Revenue and net operating profit after-tax (NOPAT) grew by 11% and 17% respectively from 2014 through TTM ending 1Q25, with NOPAT margin improving from 7% in 2014 to 11% in TTM [12] Financial Metrics - Meritage Homes generated $1.1 billion in free cash flow (FCF) from 2019 through 1Q25, representing 26% of enterprise value [18] - The company has returned $665 million to shareholders during the same period, including $179 million in dividends and $486 million in share repurchases [18][15] - The current dividend yield is 2.5%, with potential for a combined yield of 4.8% when factoring in share repurchases [14][16] Challenges - High mortgage rates have risen significantly, with the average 30-year fixed-rate mortgage at 6.8% in May 2025, making home purchases more expensive [19] - Meritage Homes' average selling price on home closings fell by 6% year-over-year in 1Q25, attributed to increased financial incentives [23] - The company's NOPAT margin decreased from 12% in 1Q24 to 8.6% in 1Q25 due to these pressures [23] Valuation Insights - At a current price of $67 per share, the market implies a permanent 30% decline in profits, despite historical growth rates of 21% compounded annually over the last five years [24] - If the company maintains historical growth rates, the stock could see a potential upside of over 40%, with a target price of $97 per share [26]

Company Overview - Meritage Homes Corporation (MTH) is currently experiencing significant attention in the options market, particularly with the Jun 20, 2025 $50.00 Call option showing high implied volatility, indicating expectations of a substantial price movement [1] Analyst Sentiment - Meritage Homes holds a Zacks Rank of 4 (Sell) within the Building Products- Home Builders industry, which is positioned in the bottom 6% of the Zacks Industry Rank [3] - Over the past 60 days, no analysts have raised their earnings estimates for the current quarter, while ten analysts have lowered their estimates, resulting in a decrease of the Zacks Consensus Estimate from $2.41 per share to $1.99 [3] Options Market Dynamics - The high implied volatility surrounding Meritage Homes suggests that options traders anticipate a significant price movement, which could indicate an upcoming event that may lead to either a rally or a sell-off [2][4] - Seasoned options traders often seek to sell premium on options with high implied volatility, aiming to benefit from the decay of the option's value if the underlying stock does not move as much as expected by expiration [4]

Core Points - Meritage Homes has extended its partnership with Operation Homefront's Permanent Homes for Veterans Program, donating two new, mortgage-free homes for veteran families in Colorado Springs, Colorado, and Raleigh, North Carolina, marking the 12th year of collaboration and a total of 22 donations to date [1][2] Company Overview - Meritage Homes is the fifth-largest public homebuilder in the United States based on homes closed in 2024, offering energy-efficient and affordable entry-level and first move-up homes across multiple states including Arizona, California, Colorado, and others [5] - The company has delivered nearly 200,000 homes in its 40-year history, known for distinctive style, quality construction, and award-winning customer experience [6] - Meritage Homes is recognized as an industry leader in energy-efficient homebuilding, having received multiple awards from the U.S. Environmental Protection Agency for its commitment to sustainability [6] Partnership Details - The new homes will feature open-concept floorplans, designer-curated interiors, and energy-efficient features such as ENERGY STAR® appliances and smart home technology [2] - The recipients of this year's homes will be announced in September, with key presentations scheduled for November around Veterans Day [3] Operation Homefront Overview - Operation Homefront is a national nonprofit organization focused on building strong, stable, and secure military families, with 83% of its expenditures directed towards programs supporting military families [8] - The organization provides critical financial assistance, housing, and family support services to help prevent short-term needs from becoming long-term struggles [8]

Financial Performance - Home closing revenue for Q1 2025 was $1.3 billion, a decrease of 8.5% year-over-year, with home closing units down 2.6% to 3,416 homes [109]. - The average sales price (ASP) for home closings decreased by 6.0% to $392.9 thousand, attributed to increased utilization of incentives [109]. - Home orders totaled 3,876 for Q1 2025, down 2.9% from the prior year, with a 10.2% decrease in orders pace [110]. - Home closing gross margin declined by 380 basis points to 22.0% in Q1 2025, compared to 25.8% in the prior year, due to lower revenue and higher lot costs [109]. - Earnings before income taxes for Q1 2025 were $160.2 million, a decrease of $73.9 million from $234.0 million in Q1 2024 [109]. - The company generated net earnings of $122.8 million during the three months ended March 31, 2025, down from $186.0 million in the same period of 2024 [143]. Backlog and Cancellations - The cancellation rate remained stable at 9% in Q1 2025, compared to 8% in Q1 2024, which is below the company's historical average [110]. - The backlog at the end of Q1 2025 was valued at $812.4 million, a decrease of 34.7% year-over-year, with 2,004 homes in backlog, down 33.9% [116]. - The cancellation rate for Q1 2025 was 9%, slightly up from 8% in Q1 2024, but below the historical average, indicating improved order-to-closing timelines [118][119]. - The backlog at the end of Q1 2025 was 2,004 homes valued at $812.4 million, down from 3,033 homes valued at $1.2 billion in Q1 2024, reflecting a higher backlog conversion rate [119]. Regional Performance - The West Region reported home closing revenue of $479.6 million in Q1 2025, a 7.0% decrease from $515.6 million in the prior year, with a cancellation rate improvement from 9% to 7% [120]. - The Central Region's home closing revenue decreased by 14.7% to $412.5 million in Q1 2025, with a closing volume drop of 8.3% to 1,187 homes [121]. - The East Region saw a 2.8% increase in home closings to 1,231 homes, but revenue decreased by 3.6% to $449.9 million due to a 6.2% lower ASP [122]. Debt and Liquidity - The company ended Q1 2025 with a debt-to-capital ratio of 26.1% and a net debt-to-capital ratio of 13.7% after issuing $500 million in senior notes [114]. - The company's debt-to-capital ratio increased to 26.1% as of March 31, 2025, compared to 20.6% at the end of 2024 [146]. - The net debt-to-capital ratio as of March 31, 2025, was 13.7%, up from 11.7% at the end of 2024 [147]. - The company has no material debt maturities until 2027, indicating a stable short-term liquidity position [139]. - The company had $1.0 billion in cash and cash equivalents and $770.6 million available under its Credit Facility as of March 31, 2025, totaling approximately $1.8 billion in available capacity [135]. Strategic Initiatives - The company aims to maintain a top 5 market position in all markets and expand community count through strategic initiatives [112]. - Total active communities increased to 290 in Q1 2025 from 275 in Q1 2024, with an average of 291.0 compared to 272.5 [117]. - The company purchased approximately 2,900 lots for $222.1 million and started construction on 3,601 homes during Q1 2025 [111]. Cash Flow and Dividends - As of March 31, 2025, the company reported net cash used in operating activities of $42.6 million, a decrease from net cash provided of $81.9 million for the same period in 2024 [143]. - Net cash provided by financing activities totaled $414.1 million for the three months ended March 31, 2025, primarily due to proceeds from the issuance of 5.650% Senior Notes due 2035 [145]. - The company paid a quarterly cash dividend of $0.43 per share for the three months ended March 31, 2025, compared to $0.375 per share in the same period of 2024 [148]. Seasonal Variations - The company experienced seasonal variations in operating results, typically taking more orders in the first half of the year, which may affect working capital requirements [151].

Financial Data and Key Metrics Changes - Meritage Homes reported home closing revenues of $1.3 billion, an 8% year-over-year decrease due to declines in both home closing volume and a lower average selling price (ASP) of $393,000 [31][40] - The company achieved a diluted EPS of $1.69, down 33% from $2.53 in the prior year [40] - Home closing gross margin was 22%, down 380 basis points from 25.8% in the first quarter of 2024 [33][40] Business Line Data and Key Metrics Changes - The company sold almost 3,900 homes in Q1 2025, with 3,416 deliveries generating home closing revenues of $1.3 billion [9][31] - The average absorption pace decreased from 4.9% per month in the prior year to 4.4% in Q1 2025, partially offset by a 7% increase in average community count [16] - The cancellation rate remained low at 9%, attributed to the 60-day closing ready commitment [16] Market Data and Key Metrics Changes - The central region, now including Nashville, had the highest average absorption pace of 5.3% net sales per quarter [22] - The west region experienced an average absorption pace of 4.1%, with Colorado and Utah being more challenging markets [23] - The east region had an average absorption pace of 4, down from 4.6% last year, impacted by divisions in Huntsville and the Gulf Coast [24] Company Strategy and Development Direction - The company focuses on a 60-day closing ready commitment and move-in inventory to provide certainty to customers in a volatile market [11][52] - Meritage Homes anticipates a double-digit year-over-year increase in community count by the end of 2025, aiming for 20,000 units by 2027 [20] - The strategy includes balancing sales pace and price while optimizing returns and land positions [14][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged increased uncertainty in the macroeconomic environment, leading to some softening in the housing market [11] - Despite challenges, favorable demographic trends and limited supply of affordable homes are expected to capture a large portion of total homebuyer demand [11] - The company maintains its full-year 2025 guidance of home closings between 16,250 to 16,750 units, with home closing revenue of $6.6 billion to $6.9 billion [50] Other Important Information - The company ended Q1 2025 with $1 billion in cash, reflecting a new $500 million debt issuance priced at 5.65% [43] - Meritage Homes completed a two-for-one stock split on January 2, 2025, and increased its quarterly cash dividend by 15% year-over-year [44] - The company controlled approximately 84,200 lots as of March 31, 2025, equating to a 5.4-year supply based on the last 12-month closings [49] Q&A Session Summary Question: Guidance on pricing power and expectations - Management indicated that the ending backlog is at $405,000, suggesting a function of mix rather than pricing power [56] Question: Expectations for incentive levels moving forward - Management expressed confidence in Q2, noting that new communities opening in strong markets would drive demand [61] Question: Timing of new community openings - Management stated that most growth will come in the second half of the year, with new communities opening with move-in-ready inventory [70] Question: Bulk sales to investors - Management noted that traditionally around 5% of sales are to investor communities, with no recent increase in that amount [73] Question: Ability to maintain targeted sales pace - Management expressed confidence in maintaining guidance based on Q1 performance and positive trends in April [80] Question: M&A backdrop and deal flow - Management noted high deal flow and opportunities for acquisitions, particularly in strong markets like Nashville [86] Question: Competitive advantage of the 60-day moving guarantee - Management highlighted the strong realtor partnerships and the appeal of move-in-ready homes as competitive advantages [95] Question: Direct cost savings and tariff impacts - Management indicated that while labor is performing well, the impact of potential tariffs remains uncertain [104]

Financial Data and Key Metrics Changes - Meritage Homes reported home closing revenues of $1.3 billion, an 8% year-over-year decrease due to declines in both home closing volume and a lower average selling price (ASP) of $393,000 [31][40] - The company achieved a diluted EPS of $1.69, down 33% from $2.53 in the prior year [40] - Home closing gross margin was 22%, down 380 basis points from 25.8% in the first quarter of 2024 [33][40] Business Line Data and Key Metrics Changes - The company sold almost 3,900 homes in Q1 2025, with 3,416 deliveries generating home closing revenues of $1.3 billion [9][31] - The average absorption pace decreased from 4.9% per month in the prior year to 4.4% in Q1 2025, while the cancellation rate remained lower than historical averages at 9% [16][31] - The ending community count was 290, up 8% year-over-year, with 30 new communities coming online during the quarter [17][21] Market Data and Key Metrics Changes - The central region had the highest average absorption pace of 5.3% net sales per quarter, while the west region had an average absorption pace of 4.1% [22][23] - The east region's average absorption pace was 4 net sales per month, down from 4.6% last year, impacted by divisions not yet fully operational [24] - The company anticipates a double-digit year-over-year increase in community count by the end of 2025 [20] Company Strategy and Development Direction - The company focuses on a 60-day closing ready commitment and move-in inventory to provide certainty to customers in a volatile market [11][12] - Meritage Homes aims to achieve 20,000 units by 2027, with a disciplined land acquisition strategy based on local market dynamics [20][49] - The company plans to maintain its capital allocation strategy while being mindful of economic uncertainties [45] Management's Comments on Operating Environment and Future Outlook - Management acknowledged increased uncertainty in the macroeconomic environment but noted favorable demographic trends and limited supply of affordable homes [11][12] - The first few weeks of Q2 2025 felt consistent with March, with healthy interest in affordable, move-in-ready homes [21] - Management expressed confidence in maintaining guidance for home closings and revenue despite market challenges [50] Other Important Information - The company completed a two-for-one stock split on January 2, 2025, and increased its quarterly cash dividend by 15% year-over-year [44][45] - Meritage Homes ended Q1 2025 with $1 billion in cash, reflecting a new $500 million debt issuance [42][43] Q&A Session Summary Question: Guidance and Pricing Power - An analyst inquired about the guidance and pricing power, noting the expected average closing price and the lack of clear pricing power indications [55] - Management responded that the ending backlog was at $405,000, indicating a mix effect rather than pure pricing power [56] Question: Incentive Levels and Market Conditions - Another analyst asked about expectations for incentive levels as the market conditions evolve [58] - Management indicated that they are comfortable with current incentive thresholds and have achieved targeted sales volumes [63] Question: Community Openings and Sales Pace - An analyst questioned the timing of new community openings and their impact on sales pace [66] - Management confirmed that most growth will come in the second half of the year, with new communities expected to drive higher absorption rates [70] Question: Bulk Sales to Investors - An analyst asked about the percentage of sales to bulk investors and future expectations [71] - Management noted that traditionally around 5% of sales are to investor communities, with no recent increase [74] Question: M&A Landscape and Deal Flow - An analyst inquired about the M&A backdrop and deal flow in the current market [85] - Management stated that deal flow is high, with opportunities to renegotiate terms and potential price concessions [89] Question: Competitive Advantage and Realtor Engagement - An analyst asked about the competitive advantage of the 60-day move-in guarantee and realtor engagement [93] - Management highlighted a 92% co-broke rate and emphasized the importance of move-in-ready inventory as a competitive advantage [96] Question: Direct Cost Savings and Tariff Risks - An analyst questioned the potential for direct cost savings and the impact of tariffs on the supply chain [102] - Management expressed confidence in navigating cost environments and maintaining production pace despite potential tariff impacts [106]

Core Viewpoint - Meritage Homes Corporation (MTH) reported mixed first-quarter 2025 results, with earnings missing estimates while total closing revenues exceeded expectations for the tenth consecutive quarter [1][3]. Company Performance - MTH sold nearly 3,900 homes in Q1 2025, despite challenges in the housing market, attributed to favorable demographics and a shortage of affordable homes [2]. - Earnings per share (EPS) was $1.69, missing the Zacks Consensus Estimate of $1.71, and down 33% from $2.53 in the prior year [3]. - Total revenues amounted to $1.36 billion, an 8% decline from $1.47 billion year-over-year [3]. Revenue Breakdown - Total Closing Revenues were $1.36 billion, down 8% from the previous year but exceeding the consensus estimate of $1.33 billion by 1.5% [4]. - Home closing revenues were $1.34 billion, also down 8% year-over-year, while land closing revenues surged 569% to $15.4 million [4]. Home Sales and Orders - Home closings totaled 3,416 units, a 3% decrease from the prior year, with an average selling price (ASP) of $402,000, down 2% [5]. - Total home orders fell 3% to 3,876 homes, with a dollar value decrease of 4% to $1.56 billion [6]. - The backlog at quarter-end was 2,004 units, down 34% year-over-year, with a value decrease of 35% to $812.4 million [6]. Margin and Expenses - Home closing gross margin contracted by 380 basis points to 22%, primarily due to financing incentives and rising lot costs [7]. - Selling, general and administrative expenses as a percentage of home closing revenues increased by 90 basis points to 11.3% [8]. Financial Position - As of March 31, 2025, cash and cash equivalents were $1.01 billion, up from $651.6 million at the end of 2024 [9]. - Total debt to capital ratio increased to 26.1% from 20.6% at the end of 2024 [10]. - Net cash used by operating activities was $42.6 million, compared to $81.9 million provided in the previous year [10]. Shareholder Returns and Guidance - MTH paid $31 million in dividends and repurchased 605,316 shares for $45 million during the quarter [11]. - The company expects to close between 16,250 and 16,750 homes in 2025, projecting revenues between $6.6 billion and $6.9 billion [12].

Core Viewpoint - Meritage Homes reported a decline in revenue and earnings for the quarter ended March 2025, with revenue at $1.36 billion, down 7.6% year-over-year, and EPS at $1.69, compared to $2.53 in the same quarter last year, indicating a mixed performance against analyst expectations [1]. Financial Performance - Revenue for the quarter was $1.36 billion, which was a surprise of +1.53% over the Zacks Consensus Estimate of $1.34 billion [1]. - EPS came in at $1.69, which was -1.17% below the consensus estimate of $1.71 [1]. - Total closing revenue from homebuilding was $1.36 billion, representing a year-over-year decline of -7.6% [4]. Key Metrics - Order Backlog: 2,004 homes, below the average estimate of 2,398 homes [4]. - Homes Closed: 3,416 homes, slightly above the average estimate of 3,368 homes [4]. - Homes Ordered: 3,876 homes, below the average estimate of 4,222 homes [4]. - Order Backlog Value: $812.36 million, significantly lower than the average estimate of $975.98 million [4]. - Active Communities: 290, below the average estimate of 300 [4]. - Homes Ordered Value: $1.56 billion, below the average estimate of $1.68 billion [4]. - Revenue from Land Closing: $15.42 million, significantly above the average estimate of $4.27 million, showing a year-over-year increase of +569% [4]. - Revenue from Financial Services: $7.08 million, above the average estimate of $6.42 million, with a year-over-year increase of +11.5% [4]. Stock Performance - Shares of Meritage have returned -6.5% over the past month, slightly outperforming the Zacks S&P 500 composite's -6.6% change [3]. - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [3].

Financial Performance - Meritage Homes closed 3,416 homes in Q1 2025, a decrease of 3% from 3,507 homes in Q1 2024, with home closing revenue of $1.34 billion, down 8% year-over-year[4] - Net earnings for Q1 2025 were $122.81 million, a 34% decrease from $186.02 million in Q1 2024, resulting in diluted EPS of $1.69, down 33% year-over-year[4] - Total homes closed in Q1 2025 were 3,416, generating revenue of $1.34 billion, down from 3,507 homes and $1.47 billion in Q1 2024, representing a 2.6% decrease in homes closed and a 8.5% decrease in revenue[23] - Net earnings for Q1 2025 were $122.8 million, a decrease of 34% compared to $186.0 million in Q1 2024[21] Sales and Orders - The average sales price for home closings was $393,000, a 6% decrease from $418,000 in the previous year, while home order value decreased by 4% to $1.56 billion[4] - Homes ordered in Q1 2025 totaled 3,876 with a value of $1.56 billion, compared to 3,991 homes valued at $1.63 billion in Q1 2024, indicating a 2.9% decrease in orders[23] - The order backlog as of March 31, 2025, was 2,004 homes valued at $812.4 million, down from 3,033 homes valued at $1.24 billion in the same period last year, reflecting a 33.9% decrease in backlog value[23] Operational Metrics - Ending backlog units fell by 34% to 2,004 units, with a backlog value of $812.36 million, down 35% from the previous year[4] - The company achieved a home closing gross margin of 22.0%, a decrease of 380 basis points from 25.8% in the prior year, attributed to increased financing incentives and higher lot costs[8] - Selling, general and administrative expenses as a percentage of home closing revenue increased to 11.3% in Q1 2025 from 10.4% in Q1 2024, due to higher technology and start-up costs[10] - Active communities increased to 290 in Q1 2025 from 275 in Q1 2024, showing a growth of 5.5%[23] Debt and Cash Management - Meritage Homes issued $500 million in new debt during the quarter, maintaining a net debt-to-capital ratio of 13.7%[7] - The debt-to-capital ratio increased to 26.1% in Q1 2025 from 20.6% in Q1 2024, indicating a rise in leverage[28] - The company reported cash and cash equivalents of $1 billion as of March 31, 2025, compared to $652 million at the end of 2024[10] - The company reported a net cash used in operating activities of $42.6 million in Q1 2025, a significant decline from $81.9 million provided in Q1 2024[21] - The company issued $497.2 million in senior notes during Q1 2025, contributing to a net cash provided by financing activities of $414.1 million[21] Future Outlook - For full year 2025, Meritage Homes is guiding home closing volume between 16,250 and 16,750 units, with expected revenue of $6.6 to $6.9 billion[12] - Meritage Homes Corporation is focused on expanding its market share and anticipates growth in home closing volume and revenue for the full year 2025[31] - The company added nearly 2,200 net new lots in Q1 2025, bringing total lots owned or controlled to approximately 84,200[10]