(9 February 2017)
MTH Business Summary
Meritage designs, builds, and sells single-family homes, ranging from entry-level to semi-custom luxury in Arizona, Texas, California, Nevada, Colorado, Florida, and North Carolina
- Price to Earnings: 9.48
- Earnings Per Share: $3.54
- Market Cap: 1.4B
- Current Ratio: 7.97
- Return on Equity: 11.42%
- Return on Assets: 5.42%
- Dividend Yield: 0.00%
- Price to Sales: 0.53
- Price to Book: 0.82
- Price to Free Cash Flow: N/A
Balance Sheet ($ in Millions)
- Total Current Assets decreased $13.
- Total Assets increased $112.
- Total Current Liabilities increased $48.
- Total Liabilities Increased $72.
- Total Stockholder Equity increased $40.
Income Statement ($ in Millions)
- Total Revenues decreased $45.
- Income from Operations decreased $7.
- Net Income decreased $3.
- EBITDA decreased $7.
Cash Flow Statement ($ in Millions)
- Net Cash provided by operating activities decreased $9.
- Net Cash used in investing activities increased $1.
- Net Cash provided by financing activities increased $34.
- Free Cash Flow decreased $10.
Highlights from Last 10 10-Qs
- Trends are crucial, and when it comes to cash from operating activities, MTH presents a very cyclical trend; down, up, down, up … etc.
- After experiencing a horrible Q1, MTH rebounded nicely, losing less money in cash flow in Q2, but increasing their losses in cash flow by Q3.
- Revenues are also cyclical, with an average of 3 quarters of growth, followed by a quarter of decline. If the trend continues the way it is going, it could be due for another slow quarter in Q4.
- Operating income just as cyclical. Q4/14 was followed with steep decline in Q1/15. Q4/15 followed by a steep decline in Q1/16.
- Net income, same story.
- In terms of current assets, MTH is in the middle of a downturn cycle.
- However, total assets do present a consistent upward trend.
- Both current and total liabilities present an upward trend as well.
Entry Level: $30
- Given the cyclical nature of the companies balance sheets, the charts indicate similar patterns. Right now, I am comfortable with the $30 area, which presents solid support at that level.
Exit Level: $50+
- Using discounted cash flows, it’s fair value presents at $37.99. However, if the intrinsic values and metrics of the business still prevail above that level, I would be comfortable with riding it out to $50.
- Meritage Homes is part of the potential growing industry of Homebuilders that could see big gains in 2017.
- MTH completed 2016 with 16% increase in full year net earnings, and a 15% increase in home closing revenue.
- I like the Margin of Safety of 11%.
- What turns me off to this stock is the cyclical behavior of it’s balance sheets, income statements, and cash flow statements.
- However, I do not know the homebuilding industry well enough to know if this is common.
- What I do know is that MTH’s margins are better than nearly 70% of the companies in Global Residential Construction.
- As of right now, MTH is losing money, but they’ve been losing less and less money, which is nice.
- Because of these reasons, I would be much more comfortable buying MTH at the $30 range.
- At $30 buy price, you would increase your margin of safety to 21%.