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Zacks Investment Research downgraded PulteGroup, Inc. (PHM - Analyst Report) to a Zacks Rank #5 (Strong Sell) on Aug 5, following disappointing second-quarter 2013 results.

Why the Downgrade?

On Jul 25, Pulte announced weak second-quarter results, missing the Zacks Consensus Estimate for both earnings and revenues. While earnings of 26 cents per share doubled from the prior-year quarter’s earnings of 13 cents, it lagged the Zacks Consensus Estimate of 29 cents by 10.3%. While total revenue grew 19.6% year over year, it lagged the Zacks Consensus Estimate of $1.39 billion by 7.9%.

The homebuilder’s net orders declined a surprising 12.4% in the quarter despite the solid momentum in the overall housing market. Pulte’s net order decline was a sharp contrast to double-digit increases reported by other large homebuilders.

Net orders were weak due to a decline in the number of communities as the company has been intentionally slowing down sales due to lack of land development and scarcity of finished lots. The company is focusing more on driving price and margin rather than pushing up unit volumes; which we believe affected net order growth in the quarter. Though pricing increased sharply in the quarter, the net order decline raises concern.

Most of the estimates moved down over the last 30 days. The Zacks Consensus Estimate for both 2013 and 2014 decreased by 11.0% each to $1.21 per share and $1.30 per share, respectively over the same time frame.

Other Stocks to Consider

Some homebuilders with a favorable Zacks Rank are performing well and are worth considering. These include Lennar Corp. (LEN - Analyst Report), Ryland Group Inc. (RYL - Snapshot Report) and Meritage Homes Corp. (MTH - Snapshot Report). All these companies carry a Zacks Rank #2 (Buy).

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