Meritage Homes: Head for the Exit

| About: Meritage Homes (MTH)
  • Q2 loss $2.37/shr vs Street view loss of 72 cents/shr
  • Shares down 0.4 percent in after-hours trading

Meritage Homes Corp (NYSE:MTH) is the 10th largest U.S. home builder. Yesterday, the company said its second-quarter net loss widened as a result of higher impairment charges and a drop in the number of homes sold.

The homebuilder reported a net loss of $74 million, or $2.37 per share, compared with a year-ago loss of $23 million million, or 79 cents per share.

Including impairments, gross margin was a negative 17.7 percent compared with 4.4 percent in 2008.

On Monday, the U.S. Commerce Department said annual sales of new-single family homes rose 11 percent in May to a rate of 384,000, its fastest pace in eight years. Meanwhile, unsold new home inventory shrank to more than an 11-year low.

“Our view of these numbers is very negative, clearly the company strategy is not working out, it is not positioned to take advantage of a potential rebound in market and it is likely to suffer further losses short term. We do not recommend investors to buy shares of this company at current prices $21.5,” said Sergio Vieira, our President & CEO at Beyond Trading Corporation.

Meritage sold 890 home in the quarter, down 36 percent from a year earlier and generated 41 percent less revenue or $220 million. The average price of a home sold was 8 percent lower at $248,000. New orders declined to 1,147, down 22 percent.

Beyond Trading does not recognize a competitive advantage in the company recent move to reposition itself to focus on selling lower-costs homes geared for entry level and first-time move up buyers.

Vieira added, "Almost everyone is trying to do the same on this difficult market. Meritage Homes (MTH) numbers are scary even in this complicated environment, it has not proven anything yet to potential new investors. We consider share price to be quite overvalued."

Disclose: No position on the stock. Beyond Trading has a Sell rating on Meritage Homes, recommended to sell short at $21.5 to subscribers