Meritage Homes: Strategy for Growth and Stability in Volatile Times

Meritage Homes is pursuing ambitious goals in backlog conversion and cycle times. CEO Phillippe Lord stated that the company aims for a conversion rate of over 125%, with recent figures even reaching 145%. With a focus on maintaining cycle times around 120 days, the company plans to turn assets over three times a year. Speculative inventory is to be held for four to six months, divided into one-third move-in ready, under construction, and in the initial stage. The recent acquisition of Elliott Homes is seen as a strategic gain, as explained by CFO Hilla Sferruzza. Although no ongoing projects were acquired, the signing of new units is expected in the fourth quarter, with completions by the end of the first quarter. This acquisition is expected to contribute positively to margins and long-term growth. Additionally, the company is working on an off-balance-sheet land financing structure to support additional growth. In light of the current market conditions, characterized by high interest rates, the higher expected incentives are reflected in the fourth quarter's profit margin. While the incentives are above pre-crisis levels, Meritage anticipates a long-term reduction once interest rates stabilize. Nevertheless, the company remains confident in achieving its long-term margin goals. Regarding land acquisitions, Phillippe Lord described the shortage of finished lots, posing a challenge for the company to develop 90% of the sites themselves. Despite the potential access to finished lots through the acquisition of Elliott Homes, self-development remains a core component of Meritage's strategy. In the event of interest rate fluctuations, Meritage plans to adjust incentives accordingly. If interest rates fall, incentives may be reduced to improve profit margins, provided the sales pace is maintained. Conversely, rising interest rates could create margin pressure, which the company intends to address with strategic cost control and pricing measures.