NEW YORK ( TheStreet) -- Meritage Homes Corporation (NYSE: MTH) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its generally weak debt management, disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself.

Highlights from the ratings report include:
  • The debt-to-equity ratio of 1.22 is relatively high when compared with the industry average, suggesting a need for better debt level management.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Household Durables industry and the overall market, MERITAGE HOMES CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for MERITAGE HOMES CORP is rather low; currently it is at 18.80%. It has decreased from the same quarter the previous year.
  • Net operating cash flow has significantly decreased to -$8.17 million or 154.81% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • The share price of MERITAGE HOMES CORP has not done very well: it is down 21.19% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.

Meritage Homes Corporation engages in designing and building single-family attached and detached homes in the southern and western United States. Meritage Homes has a market cap of $515.6 million and is part of the industrial goods sector and materials & construction industry. Shares are down 27.6% year to date as of the close of trading on Monday.

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