(1:00) - Recognizing Trends In The Home Sector: Learning From The Earnings Report (8:45) - Home Builders Watchlist: Who’s Performing Well Right Now? (24:30) - Episode Roundup: PHM, DHI, LEN Podcast@Zacks.com
Welcome to Episode #346 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds and ETFs and how it impacts your life.
This week, Tracey is going solo to talk about what is going on with the homebuilders. The stocks were left for dead last year as mortgage rates jumped over 7%. Sales of existing, and new homes, plunged virtually overnight.
Wall Street thought the homebuilders were doomed with higher mortgage rates. Many people believed that this could be a replay of 2008 with inventory soaring, foreclosures and short sales, and prices plunging. The last place you would want to be in 2008 2.0 is in the homebuilder stocks.
Has Housing Already Bottomed?
But rates have come down off 2022 highs and the 30-year fixed is around 6%. According to some of the national, publicly-traded, homebuilders demand has picked up again. Is it a boom time again? No. But orders aren’t as bad as last year.
Even more importantly, homebuilder margins are remaining elevated as lumber prices have fallen and other material costs have come down even though the builders are giving out more incentives, cutting prices and doing mortgage rate buydowns.
The “Hope” Trade
The homebuilder stocks have rallied over the last 3 months on the “hope” trade for the spring season but they remain cheap on a P/E basis.
Should investors be diving back into the homebuilder stocks?
3 Cheap Homebuilder Stocks 1. PulteGroup, Inc. ( PHM Quick Quote PHM - Free Report)
PulteGroup is one of the largest homebuilders in the United States. When it reports earnings, Wall Street listens.
PulteGroup recently reported Q4 2022 but it did not give guidance for the full year of 2023. It only gave margin guidance for Q1. PulteGroup saw demand rise very month in Q4, as well as the first full month of Q1, which was Jan 2023.
Shares of PulteGroup surged 41% in the last 3 months but are still cheap, with a forward P/E of just 7.4. But earnings are expected to fall 30% in 2023 as sales remain depressed.
Was 2022 peak earnings for PulteGroup
2. D.R. Horton, Inc. ( DHI Quick Quote DHI - Free Report)
D.R. Horton is another large, national homebuilder which also recently reported earnings. The analysts clearly don’t know what to do with the homebuilders. 3 estimates were revised higher and 4 were lowered for fiscal 2023 in the week after D.R. Horton reported earnings.
The full year Zacks Consensus Estimate has fallen to $9.34 from $12.63 in the last 90 days. That’s a decline of 43.4% as D.R. Horton made $16.50 in fiscal 2022.
Shares of D.R. Horton are up 25% over the last 3 months but it, too, remains cheap on a P/E basis at just 10x.
Should investors be taking a look at D.R. Horton this spring?
3. Lennar Corp. ( LEN Quick Quote LEN - Free Report)
Lennar’s shares are hitting a new 52-week high as the bulls pile into the homebuilder stocks. Year-to-date, shares are up 13.1% and over the last 3-months, they have surged 25%.
But Lennar’s earnings are expected to fall as well in 2023. The Zacks Consensus Estimate has fallen to $9.03 from $12.31 in the last 60 days. That’s an earnings decline of 48.6% as Lennar made $17.55 last year.
Lennar has fallen to a Zacks Rank #5 (Strong Sell).
But the shares are still cheap, with a forward P/E of just 11. It also pays a dividend, currently yielding 1.5%.
When Lennar’s Rank changes, should Lennar be on your short list?
What Else do you Need to Know About the Homebuilder Stocks in 2023?
Listen to this week’s podcast to find out.