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PulteGroup (PHM) Q4 Earnings to Gain From Higher ASP & Margins

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PulteGroup Inc. (PHM - Free Report) is scheduled to report fourth-quarter 2020 results on Jan 28, before the opening bell.

In the last reported quarter, the company’s revenues and earnings topped the Zacks Consensus Estimate by 8.2% and 20.7%, and increased 9% and 32.7% on a year-over-year basis, respectively.

Notably, the company surpassed earnings estimates in each of the trailing 16 quarters.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has increased 0.7% to $1.38 per share over the past seven days. The said figure indicates a 21.1% increase from the year-ago earnings of $1.14 per share. Also, the consensus mark for revenues is $3.12 billion, suggesting 3.4% year-over-year growth.

PulteGroup, Inc. Price and EPS Surprise

PulteGroup, Inc. Price and EPS Surprise

PulteGroup, Inc. price-eps-surprise | PulteGroup, Inc. Quote

Factors to Consider

PulteGroup’s fourth-quarter Homebuilding revenues (accounting for 98% of total revenues) are expected to have witnessed growth on improvement in the U.S. housing market, prudent land investments strategy and focus on entry-level buyers.

The improved sales trend can be attributed to solid monthly housing sales data. Notably, existing-home sales grew in December 2020, with home sales in 2020 reaching the highest level since 2006. Over the past three months, existing home sales registered notable growth in October and December, however, the same dropped in November 2020. Apart from low mortgage rate environment, the rising trend of work from home owing to the coronavirus outbreak is prompting many families to purchase a house, thereby boosting demand.

Also, the company has been reaping benefits from the successful execution of initiatives to boost profitability, with focus on entry-level homes.

Overall, the Zacks Consensus Estimate for the company’s revenues of $2.99 billion suggests an increase of 1.5% on a year-over-year basis. The company’s revenues are expected to have benefited from higher average selling price or ASP. The company expects ASP of $440,000 and $450,000, indicating an increase from $429,000 registered a year ago. It expects deliveries within 6,600-6,900 homes. At the midpoint, the guided range indicates a decrease from 6,822 in the year-ago period.

Meanwhile, the consensus mark for ASP is $445,000, which points to a 3.7% year-over-year improvement. For the quarter to be reported, the consensus mark for the number of homes closed is 6,774, which points to a 0.7% year-over-year decline.

From the margin perspective, input cost inflation, specially lumber, and high costs associated with labor are expected to have weighed on margins to some extent. That said, higher leverage owing to solid demand across each of the buyer groups is expected to have mitigated the risks.
SG&A expenses (as a percentage of home sales revenues) for quarter are expected at 9.6%. In the year-ago period, SG&A expenses were 10%.

Homebuilding gross margin for the quarter is projected at 24.5% (suggesting growth from 22.8% in the year-ago period).

What Our Model Indicates

Our proven model does not conclusively predict an earnings beat for PulteGroup in the quarter to be reported. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Earnings ESP: Earnings ESP for PulteGroup is -0.12%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank  stocks here.

Stocks With Favorable Combination
 
Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

D.R. Horton, Inc. (DHI - Free Report) has an Earnings ESP of +8.91% and a Zacks Rank #2.

Century Communities, Inc. (CCS - Free Report) has an Earnings ESP of +2.09% and a Zacks Rank #1.

M.D.C. Holdings, Inc. (MDC - Free Report) has an Earnings ESP of +2.22% and a Zacks Rank #2.

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