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Bull of the Day: PulteGroup, Inc. (PHM)

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PulteGroup, Inc. (PHM - Free Report) is one of the largest homebuilders in the U.S. and operates in many fast-growing areas around the country. The firm has posted three-straight quarters of solid top-line growth in 2020 and it stands to benefit from the stellar housing market that could be poised to keep growing.

More Than Coronavirus Moving…

PulteGroup operates in over 40 major markets, under multiple brands. The company builds homes in popular areas from California and Texas to Chicago and Miami. PHM also reaches a diversified set of customers, which helps it grow everywhere from the Southwest to the West and East Coasts and gain exposure to different buying trends.

The Atlanta-based company claims that 29% of its homes are sold to "first-time" buyers, while 45% come from “move up” clients and 26% from “active adults.” PHM also has exposure to various levels of the housing market, from the under $250K group to $500K and above. In 2019, 30% of its homes closed between $300K to $399K, with another 45% coming at $400K or higher.

PulteGroup has posted some big years of revenue growth recently, with FY16 up 28%, FY17 up 12%, and FY18 up 19%. The firm did see a slowdown last year, with revenue up just slightly to $10.2 billion. That said, the company’s first three quarters of 2020 have been strong. Most recently, its Q3 revenue jumped by 9%, while its adjusted earnings surged 33%.

Plus, PulteGroup’s unit backlog increased by 29%, with its backlog revenue up 32%. “The dramatic rebound in housing demand that began in May continued through the third quarter, as we generated exceptionally strong sales across all buyer groups and realized a 36% increase in net new orders over last year,” CEO Ryan Marshall said in prepared October remarks.

“While COVID-19 still weighs on much of the U.S. economy, housing demand continued to benefit from low interest rates, supportive demographics, limited housing supply and a desire for new homes with features that can meet the evolving needs of today’s homebuyers.”

 

 

 

 

 

 

 

 

 

 

 

 

What Else?

As PulteGroup’s chief executive touched on, the U.S. housing market is booming. For instance, U.S. home sales jumped to a 14-year high in October, which marked the fifth straight monthly increase. The recent growth has been spurred by the coronavirus and the social distancing push that has millions of Americans searching for more space.

Plus, millennials continue to reach their prime homebuying years and a shortage of homes could help PulteGroup and other homebuilders continue to grow. All of these industry tailwinds help elevate the space. PHM’s Building Products-Home Builders industry, which includes Lennar (LEN - Free Report) , TRI Pointe (TPH - Free Report) , and many other highly-ranked stocks, rests in the top 3% of our over 250 Zacks industries.

On top of that, seven of the 12 brokerage recommendations we have for PHM come in at a “Strong Buy” right now, with one more at a “Buy” and none below a “Hold.” The nearby chart shows that PHM shares have crushed their industry over the last five years, up 120% vs. 50%. The stock is up 6% during the last year and 16% in the last six months.

Yet, PulteGroup is actually down around 1% in the last three months to lag its industry’s 12% climb. The stock has swung back and forth above and below its 50-day moving average and at around $43 a share it sits 12% off its early October records.

PHM also trades at a 40% discount to its own 12-month highs in terms of forward earnings and 25% below its median. The stock has also consistently traded at a discount to its industry over the last five years, despite its outperformance.

Investors should also be pleased to know that PulteGroup on December 3 announced that it raised its quarterly dividend by 17%, with its next payout available on January 5 to shareholders of record as of Dec. 16. This new payment pushes its yield up from around 1.1% to 1.3%, both of which easily top its industry’s 0.5% average.

 

 

 

 

 

 

 

 

 

 

 

 

Outlook

Zacks estimates call for PHM’s fiscal 2020 revenue to climb over 6% to reach $10.9 billion, with FY21 then projected to surge 18% higher to reach $12.8 billion. At the bottom-end, its adjusted earnings are expected to climb by 42% and 18%, respectively over this same stretch.

PulteGroup’s positive bottom-line revisions help it land a Zacks Rank #1 (Strong Buy) right now. The company has also consistently topped our EPS estimates and it grabs “B” grades for Value, Growth, and Momentum in our Style Scores system.

Clearly, PulteGroup’s fundamentals appear strong and its stock price might be poised to breakout of its current holding pattern.

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PulteGroup, Inc. (PHM) - free report >>

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