UPDATE: Sterne Agee Initiated Meritage Homes Corporation at Buy; Margins to Expand on Community Growth

Sterne Agee initiated coverage on Meritage Homes Corporation (NYSE: MTH) with a Buy rating and a $49.00 price target.

Sterne Agee analyst Jay McCanless wrote, "We view MTH as undervalued at current levels, and we are initiating with a Buy rating and $49 PT. We expect a combination of lower-cost land entering the active roster, 20% community growth, and pricing power increase the opportunities for upside EPS surprises. … MTH has been successfully sourcing land in California and Texas, and we estimate MTH will achieve the upper end of the range in FY13. We expect the community growth will provide overhead leverage and anticipate 150bp of Y/Y gross margin growth is possible."

Meritage Homes Corporation closed at $43.46 on Wednesday.

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