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High Prices & Deliveries to Aid PulteGroup (PHM) Q2 Earnings

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PulteGroup Inc. (PHM - Free Report) is scheduled to report second-quarter 2021 results on Jul 27, before the opening bell.

In the last reported quarter, the company’s earnings topped the Zacks Consensus Estimate by 7.6% but revenues missed the same by 3.7%. That said, earnings and revenues increased 60% and 18.9% on a year-over-year basis, respectively.

The company surpassed earnings estimates in each of the trailing 18 quarters.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has decreased to $1.72 per share from $1.73 over the past seven days. Nonetheless, the estimated figure indicates a 49.6% increase from the year-ago earnings of $1.15 per share. Also, the consensus mark for revenues is $3.53 billion, suggesting 36% 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 is likely to have witnessed impressive growth in second-quarter 2021, given positive momentum of the housing market in the United States. The company’s Homebuilding revenues (accounting for 98% of total revenues) are expected to have increased on improvement in the U.S. housing market, prudent land investment strategy and focus on entry-level buyers.

Apart from a low mortgage rate environment, the rising trend of work from home owing to the coronavirus outbreak has been prompting many families to purchase a house, thereby boosting demand. However, there’s no denying that the U.S. housing data was weak sequentially for April and May as rise in lumber prices along with a lack of supply took a toll on sales pace and pushed average home prices higher nationwide. Nonetheless, builders have been witnessing higher demand amid the COVID 19 pandemic, with Americans seeking more space for offices and classrooms.

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 Homebuilding revenues of $3.41 billion suggests an increase of 36.5% on a year-over-year basis, courtesy of higher average selling price or ASP and deliveries. PulteGroup expects ASP within $440,000-$445,000, indicating an increase from $416,000 registered a year ago. Meanwhile, the consensus mark for ASP is $443,000, which points to a 6.5% year-over-year improvement.

It expects deliveries within 7,400-7,700 homes. At the midpoint, the guided range indicates an increase of 27% from 5,937 units in the year-ago period.

For the quarter to be reported, the consensus mark for the number of homes closed is 7,586, which points to 27.8% year-over-year growth.

From the margin perspective, input cost inflation — especially 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. As such, given these cost price dynamics, the company expects homebuilding gross margins to expand 50 basis points in each of the second, third and fourth quarters this year.

SG&A expenses (as a percentage of home sales revenues) for the quarter are expected in the 9.9-10.3% range. The figure was 10% a year ago. It expects to realize sequential overhead leverage.

Overall, higher sales and prices along with improved deliveries and operating leverage are expected to have benefited PulteGroup’s earnings and revenues in the second quarter.

What Our Model Indicates

Our proven model does not conclusively predict an earnings beat for PulteGroup for 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: Its Earnings ESP is -3.00%. 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 #3. 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 +4.75% and a Zacks Rank #3.

Owens Corning Inc (OC - Free Report) has an Earnings ESP of +14.56% and holds a Zacks Rank #2.

United Rentals, Inc. (URI - Free Report) has an Earnings ESP of +6.18% and a Zacks Rank #2.

In-Depth Zacks Research for the Tickers Above

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

D.R. Horton, Inc. (DHI) - free report >>

United Rentals, Inc. (URI) - free report >>

Owens Corning Inc (OC) - free report >>