PulteGroup, Inc. (PHM Quick QuotePHM - Free Report) is likely to have performed well in the second half of 2023, thanks to improving residential demand and a lack of existing homes for sale. This notable homebuilder is also gaining from land acquisition strategies, margin expansion moves and regular community openings in various locations.

PHM has gained 81.5% so far this year compared with the Zacks Building Products - Home Builders industry’s 47.3% growth, the Zacks Construction sector’s 33.2% rise and the S&P 500 Index’s 18.7% rally. The company regularly raises shareholders’ value via repurchases and dividend distributions, boosting investors’ sentiment.

Earnings estimates for 2023 have increased to $11.62 per share from $11.16 in the past 30 days. This reflects 7.6% year-over-year growth on a 1.6% rise in revenues. This can further be substantiated from its VGM Score of B. These positive trends indicate bullish analysts’ sentiments, robust fundamentals and further expectations of outperformance in the near term.

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Let’s check out the factors that are pushing this Zacks Rank #1 (Strong Buy) company despite a lower backlog. The industry is also grappling with a challenging sales environment, higher cancellation rates and significant inflation.

Land Acquisition & Development Move: PulteGroup’s land acquisition strategies aim to improve volumes, revenues and profitability on an annual basis. In second-quarter 2023, the company spent $370 million on land acquisition and $523 million on related development. Considering the strong buyer demand and increase in its construction activities, the company expects land acquisition and development investment in 2023 to range within $3.5-$4 billion, up from the previously considered value of $3.3 billion. Of these, it estimates 65% to go toward the development of owned land positions.

Apart from this, PulteGroup’s land strategy emphasizes investing in shorter-lived, smaller land assets while expanding the use of land option agreements when possible, thereby mitigating market risk.

These initiatives helped PHM post impressive results in second-quarter 2023. Adjusted earnings per share beat the consensus mark by 21.5% and increased by 9.9% year over year.

Home sale revenues increased nearly 8% year over year, mainly due to the higher closings and average price of homes closed. Land sale revenues also rose 11.2% from a year ago.

Cost Control Measures: To mitigate the accelerated raw material prices, PHM and its peers have undertaken various cost control measures and focused on making the homebuilding platform more efficient, which in turn is resulting in higher operating leverage. Homebuilders have been controlling construction costs by designing homes efficiently and obtaining construction materials and labor at competitive prices. SG&A expenses (as a percentage of home sales revenues) improved by 50 basis points in the second year.

Focus on First-Time/Entry-Level Buyers: PulteGroup remains focused on the growing demand for entry-level homes, which aim at lower-priced homes, given affordability concerns prevailing in the U.S. housing market. In second-quarter 2023, it comprised 41% of first-timers, 34% of move-ups and 25% of active adults. The shift from mix to first-time is in line with its strategy of having more than one-third of business in the first-time buyer space.
 
Community Expansion Strategy: Changing demography has lifted demand for new homes in lower-density markets, including small metro areas, rural markets and large metro exurbs, as people seek larger homes to work from home amid the pandemic. The desire for more space and amenities to accommodate working and learning from home should continue to boost the U.S. housing market in the near term.

PHM has been expanding its reach in various markets via community openings and recently announced community openings in various locations. On Jun 29, it unveiled the opening of its first communities in Greenville and Columbia, SC.

The company expects the community count to grow by 5-10% in the third and fourth quarters.

Driving Shareholder Value: PHM has been paying quarterly dividends for nearly four decades. It has consistently focused on sharing its cash flows with shareholders and maintaining a solid financial position. In December 2022, it announced a quarterly dividend hike of 7% to 16 cents per share.

In the first half of 2023, PulteGroup declared cash dividends of $71.8 million and repurchased 6.4 million shares under the repurchase authorization for $400 million. On Apr 24, 2023, its board of directors increased the share repurchase authorization by $1 billion. As of Jun 30, 2023, the company had $982.9 million remaining in authorization.

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