Horton, Ryland Upgrades Lift Homebuilders

D.R. Horton, Ryland Group and Meritage Homes stocks gain in morning trading as Deutsche Bank analyst upgrades the homebuilders' shares to buy from hold.
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NEW YORK (

TheStreet

) -- Homebuilder stocks rose Monday after Deutsche Bank analysts issued upgrades on

D.R. Horton

(DHI) - Get Report

,

The Ryland Group

(RYL)

and

Meritage Homes

(MTH) - Get Report

.

"Five years into the housing market's fall, we believe it is finally near the point from which it can sustainably recover," noted Deutsche Bank analyst Nishu Sood, adding that the housing market has reached "a natural bottom."

Sood upgraded shares of D.R. Horton, Ryland and Meritage to buy from hold, joining the ranks of

M.D.C. Holdings

(MDC) - Get Report

, on the view that their simpler strategies and land pipelines will outpace sector peers.

Focus on first-time homebuyers also contributed to Sood's upgrade.

The analyst conceded that a double-dip recession could render his sentiments a premature call for recovery, but "nevertheless, we think long-term risk-reward is attractive for select names such as DHI, RYL & MTH."

Shares of D.R. Horton jumped 4.3% in morning trading Monday, Ryland added 5.4% and Meritage 6.5%. The

SPDR S&P Homebuilders

(XHB) - Get Report

, an exchange-traded fund that counts Ryland among its top holdings, rose 2.3%. The

iShares Dow Jones US Home Construction

(ITB) - Get Report

, which counts Ryland and D.R. Horton among its top holdings, traded up 2.4%.

Other sector players also pushed higher Monday. Shares of

KB Home

(KBH) - Get Report

gained 4.7%,

PulteGroup

(PHM) - Get Report

2.9% and

Toll Brothers

(TOL) - Get Report

2.4%.

Sood said the current housing downturn was the worst in recorded history reflecting "the enormous imbalances that built up such as excess inventory, foreclosures and the home price bubble." While the problems are not yet fully resolved, Sood expects the situation will not get any worse, though home prices are likely to continue to fall in the mid- to upper-end of the market.

"These historic issues may cause recovery to be slow, but will no longer prevent it from happening," he said.

While new home demand remains at "abysmal" levels relative to the sharp fall-off experienced during the recent recession, homebuilders' profitability and liquidity positions strengthened dramatically, Sood continued. He attributed the improvements to the companies' ability to cut expenses, limit spec builds and redesign products.

D.R. Horton's Stock Rating Report (DHI) Rating and Financial Analysis

-- Reported by Miriam Marcus Reimer from New York.

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