NEW YORK (TheStreet) -- Housing is one of the most closely watched industries in the U.S. If the housing industry is growing, it can mean millions of jobs in construction and follow-on sales of everything one needs to make a house or home. New-home construction in the U.S. fell in August month over month, which indicated that the real-estate recovery is still under way. Here's a stock that's been impacted by the downtrend.
Residential builder Meritage Homes (MTH) - Get Report made a double top pattern this year and this is likely to act as a ceiling on rallies. The stock is up 2% year to date, trading around $37, but that's down from its 52-week high of almost $50. The lows of early 2015, see chart below, are the only nearby support between here and the basement lows of 2011. In the chart below it is easy to spot the twin peaks in the $48-$50 area. The height of this pattern is used to generate a downside price target. The height is approximately $6 and if you subtract it from the trough of the pattern you get $37 as an initial target. Now that this initial target has been reached, the convention some chartists use is to double the downside projection or $37 minus $6 again. $31 is the result of this high-powered math.
A decline to $31 for MTH would break the support from early 2015 lows and open up a longer-term move toward the lows of 2011, see below.
Separately, TheStreet Ratings team rates MERITAGE HOMES CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate MERITAGE HOMES CORP (MTH) a BUY. This is driven by multiple 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 largely solid financial position with reasonable debt levels by most measures. We feel its 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:
- MTH's revenue growth has slightly outpaced the industry average of 12.7%. Since the same quarter one year prior, revenues rose by 18.2%. 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 slightly increased to -$38.76 million or 9.83% when compared to the same quarter last year. In addition, MERITAGE HOMES CORP has also vastly surpassed the industry average cash flow growth rate of -109.16%.
- MERITAGE HOMES CORP's earnings per share declined by 17.6% in the most recent quarter compared to 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 $3.45 versus $3.24 in the prior year. This year, the market expects an improvement in earnings ($3.51 versus $3.45).
- MTH's debt-to-equity ratio of 0.97 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further.
- You can view the full analysis from the report here: MTH