Introducing WSR Investing Club

Harry here,

I’m excited to announce we’re shipping a premium tier of The Wall Street Rollup - introducing WSR Investing Club.

2-4 times a month, the Wall Street Rollup team delivers high-conviction stock research and analysis: helping investors cut through the noise, spot potential opportunities faster, and stay ahead of the curve. We have full disclaimers at the bottom of this piece and on our website, but our content is for informational and educational purposes only and is not personalized investment advice.

The part-time writers of the WSR Investing Club include professionals who are passionate about the equity markets. We wanted to create this tier of the WSR because there’s a lot of smart investment professionals out there who love writing up their opinions on equities, but don’t have the substack or comparable audience to talk about ideas with.

Additionally, I’ve started to get so busy that I don’t have as much time anymore to zone in on single name equity ideas - so that’s when I realized it would be perfect to create an offering that does it for me. While other finance substacks go as high as $1,000/year - I wanted to create something that is significantly lower than that, but just as valuable!

As noted, 2-4 times a month will be the general cadence, with pieces generally coming out on Tuesday. We’re ramping up research pretty quickly though, so there will also be another piece coming on Wednesday - but that will only be sent to those who subscribe beforehand. Today’s piece will be accessible to everyone as we want to showcase the 1,500 to 2,000 word writeups that we will be publishing for folks.

For a limited time, you’ll be able to sign up at a 40% off rate at $20.39/month. We are evaluating creating a lower, annual plan later in the year, but wanted to provide monthly flexibility early on. Members will be able to access all old posts, as well as the new ones.

We will have a generalist focus - talking about small-caps, mid-caps, and highly topical names.

Let’s get into it.

Disclosures: I, the sole owner of High Yield Harry LLC, do not own an equity position in this name at this time. The part-time writer of this piece on Meritage Homes has no position in this name at this time.

Meritage Homes ($MTH)

Meritage Homes Corporation designs, builds and sells single-family homes ranging from entry level to semi-custom luxury. The Company primarily operates in the south, southeast and southwest of the United States. Meritage Homes is considered one of the top 10 homebuilders in the US and is headquartered in Scottsdale, AZ.

By market cap and sales volume, the Company is the fifth largest public homebuilder in the US. Founded by Steve Hilton, who is currently still active as the Chairman of the board, the Company currently has a market cap of ~$5.4bn as of August 2025. The average current selling price for a Meritage Home is ~$406,000.

The Company’s revenue in FY2025 was $6.4bn, compared to the prior year of $6.1bn. The increase was primarily attributed to higher home selling prices. Net Income for FY 2024 increased to $786mm, compared to the prior year of $739mm. Meritage is currently focused on an aggressive push into the affordable and entry-level starter home market. While Meritage has scaled back its assumption of land spending in 2025 (From $2.5bn to $2bn for the acquisition and development of new homes), they plan to use lot banking financing to secure its future pipeline. Lot banking continues to gain in popularity from multiple private credit firms opening up a lot banking strategy as regional banks continue to scale back this type of financing.

While Q2 closings and revenue for the quarter was near the top end of guidance, Meritage has suspended its rest of year closings and revenue guidance. The Company initially gave guidance of 16.25k-16.75k closings, but it did note that the executive team believes it can still deliver over 16k homes in 2025. Gross profits have contracted from FY2024 to the most recent quarter, primarily due to incentives offered to buyers over the last two quarters and these incentives are expected to continue. Additionally, lot cost inflation is expected to continue as well. The flow through of these higher lot costs in 2025 and 2026 was a known headwind, but the margin guidance is likely to remain well below the low end of Meritage’s typical long term gross margin guidance range of 22.5%-23.5%.

Looking out to 2026, overall community count is expected to grow double digits YOY. This is one of the driving factors of the increase in estimated revenue for 2026. On the most recent earnings call, MTH noted that July has started slow due to normal seasonality. They also noted that market strength was exhibited in AZ, Dallas, Houston, and Southern CA, whereas FL, CO, Austin and San Antonio has faced challenges.

Overall EPS has been adjusted downward based on Company guidance and forward commentary. Additionally, many coverage analysts have adjusted EPS estimates now to a range of $7.00 – $7.25. It should be noted that the Company spent $45mm on share repurchases during the second quarter, and a total of $90mm on 1.3mm shares during the first half of 2025. This is well above its $15mm quarterly commitment. The Company said that against its now lower than expected land acquisition spend, that it will be “pressing on the gas” with regards to future share repurchases. Meritage has also instituted a dividend since 2023, with an indicated yield of 2.25%, or $.43cents per share. This compares to a $.375cents per share dividend during 2024, or a 1 year dividend growth rate of almost 58%.

Due to these aggressive shareholder distributions and buybacks, the Company shows negative free cash flow for 2024 and the cash flow statement for Q2 2025. Actual free cash flow to equity for these respective time periods are -$2.4mm and $236mm, respectively.

Like most all homebuilders adjusted since 2008 and 2009, Meritage has created a healthy balance sheet with plenty of liquidity. The Company has total notes payable of $1.8bn as of Q2 2025 and a debt to capital ratio of 25.8%. Including cash and cash equivalents of $930mm, the Company has net debt of just under $900mm at Q2 end. It should be noted that due to weaker earnings and continued share repurchases plus dividends, net debt did increase quarter over quarter by ~$75mm. Due to Company commentary on its most recent earnings call that July experienced a modest (IE not great) month, it is fair to assume that Meritage’s FCF generation and debt ratios will continue to become weaker.

As I mentioned earlier in the write-up, homebuilders have become asset light and are now using lot banking lenders to secure their future pipelines. Lot banking continues to gain popularity from private credit firms as they option the lots to home builders for a set “interest” price. This keeps homebuilders from putting the lots on their balance sheet and gives them greater financial flexibility, especially for the larger home builders with stronger credits.

Meritage’s debt is across bonds with three different maturities, with the earliest tranche being due in mid-2027. Meritage currently has an investment grade rating and ample access to the investment grade market based off current ratios and its status as the fifth largest home builder by volume among its peers in the US.

When comparing Meritage Homes stock price based relative to peers, MTH trades at a current 10.1x Forward P/E, compared to a peer group average of 12x. The Company also trades at a 20% discount delta to the peer groups mean EV/EBITDA and EV/EBIT. On a Price/BV valuation, Meritage currently trades at 1.0x P/BV, while the industry mean is 1.6x.

While Meritage Homes trades below peers based off financial valuation metrics, it is important to remember the commentary the Company gave for the remainder of 2025 and July being off to a poor start, with seasonality also mixed in. The Company will need to work to achieve its historical gross margins of 22.5%-23.5% in this rising lot inflation environment, along with increased constructions costs and increased buyer incentives eating into home selling profits. Meritage is not unique though with regards to the challenges facing the Company, as all homebuilders are facing most of these same problems as they navigate the current economic conditions.

Homebuilders are expected to start getting a significant boost to both sales and margins due to mortgage rates. As of mid-August, mortgage rates have hit their lowest pricing since last October, resulting in homebuilder stocks starting to show life to their stock price. There is a wave of optimism across the housing market and traders increasingly pricing in imminent Federal Reserve rate cuts. At the time of this writing, the average 30-year fixed rate mortgage has slipped to 6.58%. This is the lowest level in 10 months and a welcome relief to homebuilders. The entire sector is also seeing more chatter about its prospects due to the recent disclosure of Berkshire increasing its stake in Lennar Corp, having bought an additional ~$800mm worth of shares in Q2 2025. The August tailwinds have led to the SPDR Homebuilders ETF outpacing the S&P 500 ETF by 9% so far in August, and on track for its best monthly performance relative to the broader market since July 2024. Meritage Homes stock performance has largely tracked the performance of the homebuilder ETF over the last 3 months as well.

The stock is largely institutionally held, with institutions and hedge funds owning over 82% of the ticker. Banks, brokerage houses, and individuals round out the ownership capital stack. The founder and current chairmen of the board, Steve Hilton, is the largest holder of the Company as an individual, owning more than 850,000 shares. The next largest holders include the CEO and COO of the company, owning 335,000 and 145,000 shares, respectively. Both executives have been a part of Meritage Homes since 2006 and 2008, showing the longevity of their tenures and experience through a tumultuous 2009-2010 for homebuilders and the mortgage sector.

Based on forward guidance and company positioning, Meritage Homes offers a stable outlook to gain exposure to the homebuilding allocation universe. The Company has a healthy balance sheet, current shareholder friendly capital allocation policies (dividends and buybacks), and is likely to receive sales tailwinds with mortgage rates at their lowest points in the last 10 months. Even with the Company pulling guidance, they still verbally indicated a goal to sell over 16k homes in 2025. Additionally, the Company is valued at a discount to its peers relative to financial ratios like Forward P/E and Price/Book. The Company is led by a management team that has been a part of Meritage homes for close to 20 years. Due to Meritage’s size as the 5^th largest homebuilder by volume and the number of markets the homebuilder participates in, the Company is not subject to regional tailwinds that might affect a number of its competitors who only are positioned in a specific region of the US. Meritage is well diversified with communities across the US, specifically in the west and southeast, and with its growing asset-lite pipeline will stand to benefit from homebuilder tailwinds if they do come to fruition.

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