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We cut almost all our Meritage Homes (MTH) a week ago Friday, in retrospect about 4 days too early (despite a 25% one week surge), so Tuesday's 11% drop does nothing to us, as we have a 0.1% stake. I don't want to rebuy here, because after the drop, it is still above the price we sold. These home builders are extremely volatile and sensitive to news, so the charts are not quite so useful either, but here is the current look.

Tuesday, Meritage had earnings and obviously it was not enough to please the Street. It's still performing better than the average bear in the group (remember, MTH is heavy in Texas), but as I keep saying in this new ETF, program trading dominated era, I just don't think individual company metrics mean much anymore. The whole housing group generally moves as one.

Specific to Meritage if you exclude the "1x" (ahem) impairment cost along with the benefit from the extinguishing of debt, they only lost $14 million. It's actually a relatively rotten landscape, but the way the stock has moved the past few weeks is exactly why we own this. Thankfully fundamentals no longer matter - just keep repeating "Green shoots".

With that said, MTH is doing good moves by terminating new developments in Phoenix, and focusing on where the government largess is (for now) - 1st time home buyers. Then once we expand that $8000 tax credit to everyone and move it up to $15,000 - home builders should really fly by the indirect transfer from taxpayers pockets to home builders P&Ls. Free market capitalism, baby.

Via Reuters

  • Meritage Homes Corp (MTH), the 10th largest U.S. home builder, 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. Analysts on average had expected the company to report a loss of 72 cents per share, according to Reuters Estimates. The results included $67 million of impairment charges due to the lower value of its land and inventory and a $7 million gain on early extinguishment of debt.
  • About $55 million of the second-quarter 2009 impairments charges were attributed to the company decision to terminate its largest purchase agreement for about 1,200 lots in north Phoenix. (good - don't throw good money after bad) "After much analysis and discussion, we determined that our expected returns from that project did not support its continued development at this time," Chairman and Chief Executive Officer Steven Hilton said.
  • The majority of the remaining $12 million in impairments were related to property in Las Vegas.
  • 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 also declined to 1,147, down 22 percent. The value on the orders fell 32 percent to $263 million because of fewer homes sold and and a lower average sales price -- $230,000 in the second quarter 2009 compared with $263,000 in the year-earlier quarter.
  • The company has repositioned itself to focus on selling lower-costs homes geared for entry level and first-time move up buyers. (another smart move - basically as the government gives out taxpayer money it goes directly to the homebuilders bottom line, and the banks) About 68 percent of second quarter 2009 sales were to entry level and first time move-up buyers, compared with 61 percent the prior year.
  • Meritage ended the quarter with $385 million in cash and reduced its debt-to-capital ratio by a third.

Full report

here

  • .... aided by the lowest cancellation rate we've experienced since the third quarter of 2005.
  • ... Our goal is to return to profitability sometime during 2010.

[May 13, 2009: Replacing Lennar (NYSE:LEN) with Meritage Homes]

Disclosure: Long Meritage Homes in fund; no personal position

Source: Meritage Homes Does Face Plant on Earnings