NEW YORK (TheStreet) -- Shares of Standard Pacific (SPF) were gaining 5.7% to $8.84 Monday morning after the company announced it will merge with competitor homebuilder Ryland (RYL) .

Shares of Ryland were gaining 5.7% to $45.22 following the merger announcement.

The companies said the merger of equals will create the fourth largest homebuilding company in the U.S. after D.R. Horton (DHI) - Get Report, Lennar Corp. (LEN) - Get Report and PulteGroup (PHM) - Get Report. the combined company will have an equity market capitalization of about $5.2 billion and an enterprise value of about $8.2 billion.

At the time of the merger Standard Pacific will implement a 1 for 5 reverse stock split so five shares of Standard Pacific will be combined into one share. After the reverse stock split Ryland shareholders will receive 1.0191 shares of Standard Pacific for each share of Ryland they own.

Standard Pacific shareholders will hold about 59% of the combined company with Ryland shareholders holding the remaining 41%.

"Combining two industry leaders with nearly 100 years of homebuilding experience between them puts us in a strong position to benefit from the continued housing market recovery," Standard Pacific President and CEO Scott Stowell said. "With this merger we gain both geographic and product diversification, expanding our reach and enhancing our growth prospects in the entry level, move-up and luxury market segments."

Ryland CEO Larry Nicholson will become President and CEO of the combined company. 

TheStreet's Jim Cramer, portfolio manager of the Action Alerts PLUS Charitable Trust had this to say: "This industry is in bad need of rationalization. That said, I vastly prefer Lennar to either or both of these two companies and if you think that housing's really going to perk up go buy Wells Fargo  (WFC) - Get Report, which is our biggest financial in"

Insight from TheStreet's Research Team:

Standard Pacific is a part of David Peltier's Stocks Under $10 Portfolio. Here is what Dave had to say about the stock in a recent alert:

Standard Pacific (SPF:NYSE) was recently trading about 6% higher after the homebuilder announced that it is merging with competitor Ryland Group (RYL:NYSE).

The deal is expected to close in the fall, at which time Standard Pacific will conduct a one-for-five reverse-stock split. After the split, Ryland investors will receive 1.0191 share, which will result in Standard Pacific shareholders controlling 59% of the combined company. Standard Pacific CEO Scott Stowell will be the executive chairman of the combined company. Ryland CEO Larry Nicholson will retain the same title.

We believe the merger makes both strategic and financial sense. The combined company will be a top-five player in 15 of the top 20 U.S. markets. In addition, management expects to realize $50 million to $70 million of annual cost savings by the end of 2016.

We maintain our One rating on the stock, which was trading around $8.86. We believe that Standard Pacific can move into the double digits in coming quarters.

-David Peltier, "Standard Pacific-Ryland Merger Makes Sense," originally published 6/15/15 on$10

Separately, TheStreet Ratings team rates STANDARD PACIFIC CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate STANDARD PACIFIC CORP (SPF) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.6%. Since the same quarter one year prior, revenues slightly increased by 2.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • STANDARD PACIFIC CORP's earnings per share declined by 11.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, STANDARD PACIFIC CORP increased its bottom line by earning $0.53 versus $0.47 in the prior year. This year, the market expects an improvement in earnings ($0.62 versus $0.53).
  • The debt-to-equity ratio of 1.33 is relatively high when compared with the industry average, suggesting a need for better debt level management.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Household Durables industry and the overall market, STANDARD PACIFIC CORP's return on equity is below that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: SPF Ratings Report