PulteGroup Inc (PHM - Analyst Report) is set to report fourth quarter 2012 results on Jan 31. Last quarter it posted an earnings surprise of 35.0%. Let’s see how things are shaping up for this announcement.
Growth Factors this Past Quarter
The rising demand for new homes has led to a favorable situation in the housing market, where inventory levels are dropping and prices are moving up. Homebuilders like Pulte with significant land positions, broad geographic and product diversity, and better capital positions.
The company is witnessing better year-over-year growth in homebuilding revenues driven by an increase in new home orders and average selling prices. The company has been lowering its community count in order to improve long-term returns. Moreover, improving homebuilding revenues combined with the company’s cost control initiatives are boosting margins.
Our proven model does not conclusively show that Pulte is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Read: Zacks ESP: A Better Method) and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: Pulte’s currently has an Earnings Expected Surprise Prediction (ESP) of -3.23%.
Zacks Rank #2 (Buy): Pulte’s Zacks Rank #2 (Buy) when combined with a negative ESP lowers the predictive power of ESP earnings and makes surprise prediction difficult. We caution against stocks with Zacks #4 and #5 Ranks (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Meritage Homes Corporation (MTH - Snapshot Report), Earnings ESP of +4.76% and Zacks Rank #1 (Strong Buy).
MDC Holdings Inc. (MDC - Snapshot Report), Earnings ESP of +11.63% and Zacks Rank #1 (Strong Buy).
Ryland Group Inc. (RYL - Snapshot Report), Earnings ESP of +6.00% and Zacks Rank #2 (Buy).