Will This Downgrade Hurt Meritage Homes (MTH) Today?

Tickers in this article: MTH

NEW YORK ( TheStreet) -- Meritage Homes   has been downgraded to "underperform" from "neutral" with a $51 price target, Bank of America said Monday. The firm said the company will likely face margin compression. 

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TheStreet Ratings team rates MERITAGE HOMES CORP as a Buy with a ratings score of B+. The team has this to say about their recommendation:

"We rate MERITAGE HOMES CORP (MTH) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, attractive valuation levels, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 28.8%. Since the same quarter one year prior, revenues rose by 47.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Net operating cash flow has increased to -$46.75 million or 47.01% when compared to the same quarter last year. Despite an increase in cash flow, MERITAGE HOMES CORP's cash flow growth rate is still lower than the industry average growth rate of 59.48%.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • MERITAGE HOMES CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MERITAGE HOMES CORP increased its bottom line by earning $3.24 versus $2.77 in the prior year. This year, the market expects an improvement in earnings ($3.80 versus $3.24).

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