Valuation Scorecard: Stock Rating A-Highest (4/1/24)-Meritage Homes Corp (MTH).

As reflected at the current price of $172, what future Meritage Homes operating performance is the market anticipating? Over the next 6 years, Meritage Homes shares will need to reach $289 to achieve average annual stock market performance of 9.0%. To achieve Upper quartile performance, Meritage Homes’ stock price will need to reach $340 by 2029.

Executive Summary

• Key Meritage Homes characteristics: high expected growth, high financial strength, high profitability, and instability. A big positive influence on Meritage Homes’ valuation is its superior Growth.
• Very low valuation, above market shareholder returns. Current valuation levels are very low relative to the Meritage Homes Peer Group. Recent market returns have outperformed the Meritage Homes Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Meritage Homes shares should reach a level of $798 by 2029 — an 29.6% per year total shareholder return. A 2029 stock price of $289 would reflect median performance and a price of $340 would be required to reach upper quartile performance.
• Growth has been Meritage Homes’ biggest valuation strength. Historical growth has been very high relative to the Meritage Homes Peer Group and forecasted growth is relatively very high. Asset Growth, and Equity Growth have been superior. These factors have buoyed market perceptions of Meritage Homes. Meritage Homes’ historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity. Meritage Homes’ consensus growth expectations are in line with past growth.
• Pretax ROA, and Pretax Margin are group leading. These factors have strengthened market perceptions of Meritage Homes. The company has normal cash needs.
• Meritage Homes’ risk profile is very favorable. Overall variability has been relatively low with relatively low revenue variability, only average E.P.S. variability, and very high stock price volatility. Financial Strength is relatively very high and earnings’ expectations are only average. The debt/capital ratio has declined very significantly.

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