ISI Starts Homebuilding Sector: LEN, PHM, DHI at Buy, MTH at Sell (XHB)

ISI Group's Stephen East initiated coverage on the Homebuilding sector Wednesday morning. The analyst believes the space is showing signs of a turnaround. While East is positive on the long-term potential for the sector, he warns of weakness in stocks over the near-term given the recent run-up in the sector over the last few months.

"The group's valuation has become stretched in the near term as investors crammed a year's worth of optimism into six weeks worth of trading. For traders, getting long this space is an action we find difficult. Yet we admit many of the companies in this sector are buyable for longer-term investors at this level," East said.

The analyst started coverage on the following stocks:

• Lennar (NYSE: LEN) with a Buy rating and a $28 price target
  
• Pulte (NYSE: PHM) with a Buy rating and a $10.75 price target
  
• DR Horton (NYSE: DHI) with a Buy rating and a $17 price target
  
• Toll Bros. (NYSE: TOL) with a Hold rating
  
• KB Home (NYSE: KBH) with a Hold rating
  
• NVR (NYSE: NVR) with a Hold rating
  
• MDC Holdings (NYSE: MDC) with a Hold rating
  
• Ryland (NYSE: RYL) with a Hold rating
  
• Meritage Homes (NYSE: MTH) with a Sell rating and a $22.50 price target

The SPDR S&P Homebuilders ETF (NYSE: XHB) is indicated about 0.5 percent lower Wednesday morning.

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