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Bull of the Day: PulteGroup (PHM)

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PulteGroup, Inc. (PHM - Free Report) is taking advantage of strong consumer confidence and a tight job market. This Zacks Rank #1 (Strong Buy) is expected to see double digit earnings growth in 2020.

PulteGroup is one of America's largest homebuilders with operations in more than 40 markets around the country.

Its brands include Centex, Pulte Homes, Del Webb, DiVosta Homes, American West and John Wieland Homes and Neighborhoods.

PulteGroup segments include 30% entry-level and first-time buyers, 30% move-up buyers, 15% luxury and 25% active adult.

Another Beat in the Third Quarter

On Oct 22, PulteGroup reported its third quarter results and beat the Zacks Consensus Estimate by $0.09. Earnings were $1.01 versus the consensus of $0.92.

The company has an outstanding earnings surprise track record, with the last miss all the way back in 2015.

Revenue rose 3% to $2.6 billion as closings rose 3% to 6,186 homes. The average sales price remained the same as the prior year, at $426,000.

Gross margin, a key metric for the homebuilders, was 23.1%.

Net new orders for the quarter rose 13% over the year ago period to 6,031 homes. Unit backlog also rose by 4% to 11,638 homes with a value of $5 billion, up 2% from the third quarter of 2018.

Estimates on the Rise

Analysts liked what they heard in the quarter, as 8 estimates were revised for both 2019 and 2020 since the report.

The 2019 Zacks Consensus Estimate has jumped to $3.54 from $3.42 in the last 60 days.

Additionally, the 2020 Zacks Consensus Estimate also rose to $3.90 from $3.72 during that same time. That's earnings growth of 10.1% over 2019.

Shares Soar in 2019 But Remain Cheap

The homebuilders were hot in 2019.

PulteGroup shares were up 51% year-to-date, easily beating the S&P 500 during that time.

But they're still cheap, with a forward P/E of just 11.5.

PulteGroup is also shareholder friendly. In the third quarter, the company repurchased 4.1 million shares for $136 million.

On Dec 5, it also raised the quarterly dividend another 9% to $0.12 a share. With the strong market conditions, Pulte has been able to raise its quarterly dividend 33% over the past year.

Three other US homebuilders are also Zacks Rank #1 (Strong Buy) stocks right now: Hovnanian Enterprises HOV, M/I Homes MHO and Meritage Homes MTH. All three of them are also value stocks.

For investors looking to add a homebuilder in 2020, PulteGroup is one to keep on the short list.

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