(RTTNews) - Friday, Credit Suisse upgraded Meritage Homes Corp. (MTH: News ) shares to Neutral from Underperform and increased its price target to $19 from $17.

Analyst Oppenheim attributed the upgrade based on nimble operations, limited future impairments, and better valuation. The analyst sees only modest future impairments based on its limited land holdings, with most of its land in Texas.

The analyst also thinks that the company's nimble operating strategy will allow it to adjust to changing market conditions and help its profitability. Finally, the analyst views the valuation favorably, as it trades at a discount to its peers.

The analyst said that modest land holdings reduce risk of future write-downs; liquidity provides flexibility to pursue more attractive deals. Meritage has just $420 million of land under development or held for sale and the analyst estimates that about 75% of this is in Central region, with Texas comprising the majority.
As a result, the analyst expects only modest land impairments in future quarters, whereas he expects more meaningful impairments for builders with large land holdings. In addition, the company's solid balance sheet should allow it to reload on land at more attractive prices (Meritage bought 2,500 lots in third quarter).

The analyst said that Meritage is now focused on the first-time and first-time move-up buyer segments, whereas it had historically focused more on the move-up segments of the market. The analyst thinks this willingness to adjust the homes it builds will help sales and help to return to profitability sooner.

Currently, MTH is up $0.92 or 4.90% and trading at $19.71.

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by RTT Staff Writer

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