UPDATE: ISI Group Upgrades Meritage Homes to Buy

In a report published Monday, ISI Group upgraded Meritage Homes Corporation

from Neutral to Buy with a $45 price target. ISI Group noted, “In conjunction with ISI Group's adoption of a changed ratings system, we are assigning an upgraded Buy rating to MTH, with a Price Target of $45, implying roughly 15% upside over the next year, while our new Buy rating in the system targets 10% to 20% appreciation. Our prior rating was Hold. MTH has always been a name we liked fundamentally, as the execution over a long period of time, both boom and bust, consistently sat near the top of the class. Periodically though, the equity valuation reflected that and more. Over the last quarter plus, the story is much like the TOL story in that the fundamentals have started improving while the equity significantly underperformed the group. Therein lies our opportunity as we believe MTH is on the cusp of exceptional earnings growth. While we typically prefer Book Value metrics, the PE metrics are so dramatically compelling that one cannot ignore the opportunity. We also believe there will be BV multiple expansion opportunities down the road. Our $45 PT is not heroic as MTH would still trade at a sharp PE discount, with BV multiples becoming fuller, but justified as we will explain.” Meritage Homes Corporation closed on Friday at $38.78.