On Wednesday, JPMorgan updated its outlook on Meritage (NYSE:MTH) Homes Corporation (NYSE:MTH), increasing the price target to $210 from $198 while maintaining an Overweight rating. This adjustment follows the homebuilder's second-quarter earnings call, where the company reported higher-than-anticipated closings and homebuilding revenue, prompting an upward revision of its full-year guidance.
The company has adjusted its 2024 forecasts, with the midpoints for closings, homebuilding revenue, and Operating EPS now 3%, 2%, and 2% higher, respectively. Despite a second-quarter gross margin of 25.9%, surpassing the expected range of 24.5-25.0%, Meritage Homes has kept its 2024 gross margin outlook unchanged. The unchanged forecast suggests a potential decline in the second half of the year, partly due to lower revenue leverage and an unfavorable geographic mix.
Meritage Homes also anticipates using more incentives in the latter half of the year, which could further impact gross margins by 50-75 basis points. This is attributed to potentially higher inventory levels during a typically softer market period, although this is not currently observed, indicating a conservative approach.
Order growth in the second quarter was solid, with a 14% increase, albeit slightly below expectations. The company experienced consistent strength throughout the spring selling season. In light of the second-quarter performance and updated guidance, JPMorgan has revised its 2024 and 2025 Operating EPS estimates for Meritage Homes to $21.00 and $23.39, up from $20.44 and $23.26, respectively.
The new price target of $210 is now based on a target multiple of approximately 9 times the estimated 2025 earnings per share, an increase from the previous multiple of roughly 8.5 times. JPMorgan's continued Overweight rating reflects a view that the stock's valuation does not fully account for the company's projected above-average gross margins, operating margins, and return on equity for the years 2024-25.
In other recent news, Meritage Homes has been the subject of several significant developments. The homebuilder reported impressive Q2 results, with an adjusted EPS of $6.31, surpassing both Evercore ISI and consensus estimates. Evercore ISI subsequently raised the price target for Meritage Homes shares to $257 from the previous $221. In financial restructuring news, Meritage Homes expanded its credit facility to $910 million, ensuring ample liquidity and financial flexibility for the company's future growth.
Keefe, Bruyette & Woods maintained its Market Perform rating on Meritage Homes, highlighting the company's strategic initiatives to enhance customer satisfaction and streamline the purchasing process. The firm also adjusted its stock price target for Meritage Homes following the company's first-quarter earnings report, projecting a 5-7% increase in deliveries and average gross margins ranging between 23.5% and 24.7% for the years 2024 and 2025.
Meritage Homes has also announced a quarterly dividend of $0.75 per share, reflecting its commitment to shareholder returns. These developments are part of Meritage Homes' recent activities aimed at enhancing its market performance and shareholder value.
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