Advertisement

Time To Worry? Analysts Are Downgrading Their Meritage Homes Corporation (NYSE:MTH) Outlook

One thing we could say about the analysts on Meritage Homes Corporation (NYSE:MTH) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) estimates were cut sharply as the analysts factored in the latest outlook for the business, concluding that they were too optimistic previously. At US$113, shares are up 9.6% in the past 7 days. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the downgrade, the consensus from ten analysts covering Meritage Homes is for revenues of US$4.9b in 2023, implying a painful 23% decline in sales compared to the last 12 months. Statutory earnings per share are supposed to crater 54% to US$12.61 in the same period. Prior to this update, the analysts had been forecasting revenues of US$5.5b and earnings per share (EPS) of US$14.39 in 2023. It looks like analyst sentiment has declined substantially, with a measurable cut to revenue estimates and a real cut to earnings per share numbers as well.

Check out our latest analysis for Meritage Homes

earnings-and-revenue-growth
earnings-and-revenue-growth

The average price target climbed 15% to US$130 despite the reduced earnings forecasts, suggesting that this earnings impact could be a positive for the stock, once it passes. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Meritage Homes analyst has a price target of US$174 per share, while the most pessimistic values it at US$90.00. This is a fairly broad spread of estimates, suggesting that the analysts are forecasting a wide range of possible outcomes for the business.

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 23% by the end of 2023. This indicates a significant reduction from annual growth of 13% over the last five years. Yet aggregate analyst estimates for other companies in the industry suggest that industry revenues are forecast to decline 1.3% per year. So it's pretty clear that Meritage Homes' revenues are expected to shrink faster than the wider industry.

The Bottom Line

The most important thing to take away is that analysts cut their earnings per share estimates, expecting a clear decline in business conditions. Unfortunately they also cut their revenue estimates for this year, and they expect sales to lag the wider market. That said, earnings per share are more important for creating value for shareholders. The rising price target is a puzzle, but still - with a serious cut to this year's outlook, we wouldn't be surprised if investors were a bit wary of Meritage Homes.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates - from multiple Meritage Homes analysts - going out to 2025, and you can see them free on our platform here.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here