What risks could derail MTH's EPS growth in 2025?

Meritage Homes' (MTH) EPS growth in 2025 could be derailed by several risks: 1. **Decrease in Average Sales Prices**: Meritage Homes has experienced a shift in product and geographic mix, resulting in a 4% decrease in the average sales price (ASP) on orders. This trend could continue, impacting revenue and EPS growth. 2. **Increased Financing Incentives**: The company has faced challenges with elevated financing incentives, which have impacted gross margins and average sales prices. Continued use of these incentives could erode profit margins and affect EPS growth. 3. **Market Volatility and Interest Rate Fluctuations**: Meritage Homes is sensitive to market volatility and changes in interest rates, which can affect mortgage availability and the cost of materials. These factors can impact demand and the cost of operations, thereby affecting EPS growth. 4. **Supply Chain Disruptions**: The company faces risks related to land supply and the cost of materials used in community development and home construction. Disruptions in the supply chain or increases in lot costs could negatively impact margins and EPS growth. 5. **Financial Leverage and Debt**: The recent issuance of $500 million in senior notes highlights the company's reliance on debt for financing. Increased financial leverage could lead to higher interest expenses, potentially offsetting EPS growth. 6. **Strategic Expansion Challenges**: While strategic market expansions are positive, they also come with risks, such as integrating new operations and meeting regulatory requirements in new regions. These challenges could divert resources away from EPS growth initiatives. 7. **Counterparty Risk**: Meritage Homes faces uncertainty related to its capped call transactions with the 2028 Convertible Notes, exposing the company to credit risk from option counterparties. Default by these counterparties could exacerbate financial exposure and impact EPS growth. In summary, while Meritage Homes has a solid financial foundation and has achieved record revenues and deliveries, several risks could derail its EPS growth in 2025. These risks are largely related to market conditions, financial leverage, and strategic initiatives, and are closely monitored by investors and analysts.