Zacks Analyst Blog Highlights Meritage Homes, NVR and Landsea Homes

For immediate release

Chicago, IL – June 10, 2022 – Zacks.com announces the list of stocks featured in the analyst blog. Every day, Zacks Equity Research analysts discuss the latest news and events impacting stocks and financial markets. Stocks recently featured in the blog include: Meritage Homes Corp. MTH, NVR, Inc. NVR and Landsea Homes Corp. LSEA.

Here are highlights from Thursday’s analyst blog:

Falling timber prices are good for homebuilding stocks

One thing consumers are probably less concerned about is the price of lumber because the economy is on its way to opening up and we’re not sitting at home building our decks and fixing things. Not as many of us have done this in the last two years anyway.

But guess what? When the prices of a key input go down, there is a ripple effect on various other segments, which is great. Just that investors would avoid wood now, but that’s okay.

From a level of around $1,500 per thousand board feet in March 2022 to around $600 today, this is no ordinary decline, but can be called a crash. That doesn’t mean that this cheaper product will be immediately available to DIYers, though. There will likely be a waiting period while vendors run through their inventory.

Prices have been quite volatile over the past couple of years, only rising in a month only to crash over the next few years, but this time around it’s likely to be different. There are two main reasons for this, both related to demand. The first reason is rising interest rates and the subsequent increase in 30-year mortgage rates. This pushes first-timers and first-time movers out of the market, impacting housing demand (the majority of US homes use wood frame).

The second reason is that, since traffic is relatively free now, people would rather spend money on travel (which has become very expensive, by the way) than on their homes, in which they will spend less anyway time now. Dealers cut prices to avoid ending up with a lot of inventory. Given that these two factors will remain in play for some time, the downward pressure could continue.

On the other hand, there are also a few factors that could help prices once most of the accumulated inventory is gone. The first is the sharp reduction in lumber production, which will ensure that stocks will run out sooner rather than later.

The second is the underlying strength of the housing market, which is driving home construction and sales. If lumber prices continue at low levels, it pays homebuilders to produce aggressively to take advantage of the lower cost. While homeowners are still constrained by high mortgage rates, the way to get them back on the market is to pass on some of the cost savings.

One company that is capitalizing on these trends is Meritage Homes Corp.. The company has focused on the beginner and beginner pure-play segment, where demand is particularly high.

Despite its decision to cut prices for these homes and the supply chain issues that hurt its operations the same way they hurt everyone else, Meritage expects to continue to grow gross margins. It is also aggressively adding land to build more entry-level communities.

This is all going well for the company: it beat Zacks’ consensus estimate by 23.7% in the last quarter. Over the past 60 days, its 2022 estimate jumped 12.4% while the 2023 estimate rose 5.2%.

Another company benefiting from falling timber prices is NVR, Inc.. The company caters to entry level, progression and luxury buyers. While it is seeing strength in all three segments, the entry level, whether single-family or lower-end communities, is currently driving its orders.

In the last quarter, the NVR exceeded estimates by 16%. Zacks’ consensus estimate for its 2022 revenue is up more than 20% in the past 60 days. The estimate for 2023 is up 13%.

Another stock up for grabs is Landsea Homes Corp. which also focuses on the entry-level and early progression segments. It designs, builds and sells suburban and urban detached and townhouses in California, Arizona, Florida, Texas and the New York metropolitan area.

In the last quarter, Landsea also benefited from the trends mentioned above. Its turnover increased by 97%, the houses delivered increased by more than 83% and the order book increased by more than 83%. It continued to aggressively acquire lots, with the total number of owned and controlled lots increasing by more than 95%.

The end result was a 195.8% increase in profits last quarter. Over the past 60 days, the 2022 estimate has increased by 19.6% while the 2022 estimate has increased by pennies.

All three stocks carry a Zacks rank #1 (Strong Buy).

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Past performance is not indicative of future results. The potential for loss is inherent in any investment. This document is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold any security. No recommendation or advice is given as to whether any investment is suitable for any particular investor. It should not be assumed that investments in the securities, companies, sectors or markets identified and described have been or will be profitable. All information is current as of the date hereof and is subject to change without notice. The views or opinions expressed may not reflect those of the company as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management of securities. These returns come from hypothetical portfolios composed of stocks with Zacks Rank = 1 that have been rebalanced monthly without transaction fees. These are not the returns of actual stock portfolios. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for more information on the performance figures displayed in this press release.

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