UBS upgrades PulteGroup to Neutral from Buy as company's cash places it in favorable position if housing market worsens

NEW YORK , September 20, 2011 () – Shares of PulteGroup Inc. are a good buy after a 45 percent drop since the end of June, said UBS analysts on Tuesday as they upgraded the homebuilder.

THE SPARK: Analysts David Goldberg and Susan Maklari lifted the rating on Pulte's shares from "Buy" to "Neutral," saying the Bloomfield Hills, Mich., company has enough cash to survive if the housing market worsens.

THE BACKGROUND: Pulte shares have suffered as the housing market remains in a deep slump. The National Association of Home Builders said Monday that the weak U.S. economy and high unemployment have made the short-term prospects for the homebuilding industry "fairly bleak."

THE ANALYSIS: But Goldberg and Maklari based their upgrade partly on their belief that the long decline in new-home sales may be near a bottom. They acknowledged that "visibility for a turnaround is limited," but said that even if conditions worsen, Pulte can still generate cash by selling its existing inventory and curbing purchases of new land.

Goldberg and Maklari also said they expect managers' efforts to trim costs will begin to yield fruit. And while acknowledging that Pulte has about $2 billion in loans coming due over the next five years, they said they believe Pulte, currently with about $1.2 billion in cash on hand, "has sufficient liquidity to weather the storm."

SHARE ACTION: Pulte shares rose 12 cents, or 2.7 percent, to $4.50 in early trading. They have lost 40 percent of their value this year, and shares are worth less than a tenth of their peak, at $45.48 in July 2005, before the housing crisis.

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