Billionaire Ken Griffin Likes This Homebuilder

CITADEL INVESTMENT GROUPThroughout this year, even with modest economic and job growth, the housing market has appeared to be coming back and that has caused a number of stocks tied to housing and construction to rise. Meritage Homes Corporation (NYSE:MTH) is no exception: it is up 55% year to date, which has brought its market capitalization above the ten-figure mark to a total of $1.3 billion. Citadel Advisors, a large hedge fund managed by billionaire Ken Griffin, thinks that the stock has further to go: according to a recent 13G filed with the SEC, the fund had a position of 2.0 million shares in Meritage. This gave it 5.7% of the total shares outstanding. According to our database of 13F filings, Citadel had owned 1.2 million shares of the company at the end of June, easily the largest position out of the funds and other notable investors that we track. Find more stocks that Citadel owned.

Much of Meritage’s operations are in the Sunbelt, which was hit hard by the financial crisis; however, the company seems to be rebounding strongly. In the third quarter, revenue came in 54% higher than in the third quarter of 2011. As a result, Meritage Homes Corporation was profitable for that period and reported 19 cents per share in earnings (it had lost 10 cents per share a year earlier). In the first three quarters of the year, the company had EPS of 30 cents. If we annualize that year to date performance (which, obviously, comes out to 40 cents per share), then the stock is trading at a P/E of 92.

Meritage’s pricing is based on expectations of future growth: Wall Street analysts expect a very good fourth quarter, and the consensus for 2013 is $2.05 in earnings per share. That would imply a forward P/E of 24, so after that point Meritage Homes Corporation would have to continue growing. Yet if the housing market does have as much pent-up demand as some think, that could be achievable and that seems to be what Citadel is going for in an investment thesis. Jeffrey Vinik’s Vinik Asset Management had a smaller position at the end of June than Citadel- at about 180,000 shares- but all of those had been purchased in the second quarter of the year, representing another fund that was buying the stock. See more stock picks from Vinik Asset Management.

Larger U.S. homebuilders include Lennar Corporation (NYSE:LEN), D.R. Horton, Inc. (NYSE:DHI), PulteGroup, Inc. (NYSE:PHM), and Toll Brothers Inc (NYSE:TOL). Read our recent article on Lennar. These companies have market caps between $5 billion and $8 billion, so while they are not megacaps they are considerably larger than Meritage by that metric. On a forward basis, Meritage is about in the middle of this peer group: Lennar and DR Horton trade at 23-24 times forward earnings estimates, with PulteGroup’s P/E being a bit below that figure and Toll Brothers carrying a moderate premium. However, all of these companies are cheaper on a trailing earnings basis, and therefore less dependent on hitting the sell-side’s growth targets in 2013 in order to achieve these earnings estimates. In addition, in their most recent quarter each of these four companies at least came close to matching Meritage’s revenue growth rate compared to the same period in 2011; Lennar and Toll Brothers had an even stronger performance.

As a result, while the core Citadel thesis of a better housing market may be right our impression is that there are better homebuilding stocks to play that thesis. Meritage is highly dependent on future growth to justify its current valuation, and other companies in the industry should benefit about as much from a stronger market and thus also see good growth. Lennar, for example, combines a similar forward earnings multiple with better historical growth rates on the top line.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!