Here's Why Investors Should Add Meritage Homes (MTH) Stock Now

Core Viewpoint - The homebuilding industry is currently facing challenges such as high mortgage rates and rising costs, yet Meritage Homes Corporation (MTH) is positioned to benefit from improved cycle times and a strategic focus on entry-level and first-move-up homes, which is expected to drive higher volume in the future [1][14]. Financial Performance - In the first quarter of 2024, Meritage Homes reported a year-over-year increase in earnings by 42.9% and total closing revenues by 14.5%, attributed to higher deliveries and an adjusted gross margin improvement of 340 basis points [2]. - Home closings rose by 21% year over year, with 3,507 homes delivered, reflecting the effectiveness of the company's spec-building strategy [6]. Strategic Initiatives - The company employs a solid spec strategy, focusing on building homes without prior buyers, which enhances construction efficiency and reduces wait times for buyers, thereby stimulating market demand [5]. - Meritage Homes has aggressively invested in land acquisition and development, spending $430.4 million in the first quarter of 2024, a 39% increase from the previous year, and currently controls 66,400 lots compared to 60,900 lots a year ago [7]. Market Focus - The company is concentrating on the growing demand for entry-level homes, with 91% of sales orders in the first quarter coming from entry-level buyers, up from 87% a year ago [10]. - Meritage Homes has reduced the average sales price by 4% year over year to cater to millennials and baby boomers seeking affordable housing options [11]. Valuation and Estimates - The earnings estimates for 2024 indicate a growth rate of 1.7% year-over-year, with earnings per share revised to $20.27 from $19.99 over the past 60 days, reflecting positive analyst sentiment [12]. - The stock is trading at a forward price-to-earnings ratio of 7.3X, below the industry average of 9.1X, suggesting an attractive valuation for investors [13]. Conclusion - The strategic focus on entry-level and first-move-up homes is expected to enhance Meritage Homes' market share and volume in the future, particularly through digital communities [14].