On Wednesday, Keefe, Bruyette & Woods adjusted its stock price target for Meritage Homes (NYSE:MTH), a leading American real estate development company, increasing it to $195 from the previous $180, while maintaining a Market Perform rating on the stock. This revision follows the company's first-quarter earnings report and is based on updated estimates for 2024 and 2025.
The firm's analysts have revised their forecasts for Meritage Homes, projecting a 5-7% increase in deliveries and average gross margins ranging between 23.5% and 24.7% for the years 2024 and 2025.
This is a slight decrease from the 24.8% margin in 2023 and a more substantial drop from the 28.8% margin in 2022. Despite this, Meritage Homes has indicated that its long-term margin target of 22% might now be set at a higher level, a topic expected to be discussed in upcoming investor day webcasts.
The firm's stance on the housing market, referred to as a Sideways housing thesis, remains unchanged. It is supported by the low inventory of resale homes and the fact that more than 90% of home mortgage borrowers have rates below 6%.
The new stock price target of $195 equates to 1.5 times the tangible book value and 1.3 times the forward book value. This valuation is in line with that of mid-cap peers and is considered modestly attractive by the firm.
Despite the increased stock price target, Keefe, Bruyette & Woods continues to recommend a Market Perform rating for Meritage Homes. The firm expresses a preference for larger-cap peers in the current market environment, suggesting that while the outlook for Meritage Homes is positive, there may be more favorable opportunities elsewhere in the sector.
InvestingPro Insights
Meritage Homes (NYSE:MTH) has recently garnered attention with Keefe, Bruyette & Woods revising its price target upwards. To provide further context, InvestingPro data reveals a market capitalization of $6.58 billion and a compelling P/E ratio of 8.32, suggesting an attractive valuation relative to earnings. Moreover, the company's stock is trading near its 52-week high, with a price percentage of 98.54% of that peak, reflecting strong investor confidence.
InvestingPro Tips highlight that analysts have revised their earnings upwards for the upcoming period, which aligns with the positive revisions from Keefe, Bruyette & Woods. Meritage Homes has experienced a significant return over the last week, with a 1-week price total return of 8.42%.
This momentum is complemented by the company's solid financial health, where liquid assets exceed short-term obligations, and it operates with a moderate level of debt. These insights suggest that Meritage Homes is well-positioned in the market with a stable financial base and potential for continued growth.
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