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PulteGroup (PHM) Surges 75% in a Year: More Upside in 2024?
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Although mortgage rates continue to scale upward, the housing forecast still looks optimistic given favorable demographics, a significant housing supply shortage and the continuous solid demand trend.
Given these tailwinds, among the industry bellwethers, PulteGroup, Inc. (PHM - Free Report) has been benefiting from favorable demand conditions, a solid operating model and prudent annual land acquisition strategies.
Shares of this Zacks Rank #1 (Strong Buy) company have gained 74.9% in the past year, outperforming the Zacks Building Products - Home Builders industry’s 51.1% growth. The stock has fared better than the Zacks Construction sector and the S&P 500 Index’s 45.5% and 26.7% rallies, respectively.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate has moved north over the past 30 days as analysts increased their estimates, depicting optimism over the stock’s growth potential. Over the said time frame, the Zacks Consensus Estimate for 2024 earnings per share (EPS) has increased to $12.89 from $11.77.
This bullish trend justifies the stock’s addition to investors’ portfolios. This homebuilder has a long-term earnings growth rate of 17.7%, which highlights its inherent strength.
Let’s delve into the driving factors.
Solid Operating Model: PulteGroup is effectively managing a balance between spec (speculative) and build-to-order approaches to drive growth by maintaining a strategic mix and responding to market conditions. PulteGroup maintains a 50/50 balance between build-to-order and spec sales. This balance allows them to cater to different segments of the market, ensuring they can meet immediate demand with spec homes while also accommodating buyers who prefer to customize their homes with build-to-order options. PulteGroup tailors its approach based on the brand. For instance, Centex predominantly focuses on spec homes, while Pulte and Del Webb are more inclined toward a build-to-order approach. This differentiation helps them target various buyer preferences and market segments effectively.
Precisely, in times of higher interest rates, having spec homes allows PulteGroup to offer powerful incentives, such as forward mortgage rate commitments. These incentives can be more effectively applied to spec inventory, making them more attractive to buyers who are concerned about rising interest rates.
By balancing spec and build-to-order homes, PulteGroup is able to address diverse buyer needs, remain flexible in response to market conditions, and leverage operational efficiencies to drive growth.
Land Acquisition: PulteGroup’s strategic focus on land acquisition is a major growth driver, boosting volumes, revenues, and profitability. In 2023, the company invested $4.3 billion in land acquisition and development, continuing with $1.1 billion in the first quarter of 2024. Of this, 60% was directed toward developing existing land assets. For 2024, PulteGroup plans to spend about $5 billion on land, maintaining a 60/40 split between development and new acquisitions. This strategy aligns with the company's goal of increasing future delivery volumes by 5-10% annually, ensuring sustained growth and enhanced profitability.
Focus on Affordability: PulteGroup is strategically focused on meeting the growing demand for entry-level homes, addressing affordability concerns in the U.S. housing market. This emphasis on lower-priced homes has significantly boosted profitability. In the first quarter of 2024, first-time buyers made up 41% of PulteGroup's customers, with 36% being move-up buyers and 23% active adults. This shift toward a higher proportion of first-time buyers aligns with the company's strategy to ensure that over one-third of its business caters to this segment, highlighting the success of its initiatives in this critical market.
Higher Return on Equity (ROE): PulteGroup’s trailing 12-month ROE is indicative of its growth potential. ROE for the trailing 12 months is 25.8%, much higher than the industry’s 15.9%, reflecting the company’s efficient usage of shareholders’ funds.
Other Key Picks
Some other top-ranked stocks that warrant a look in the sector are as follows:
Armstrong World Industries, Inc. (AWI - Free Report) currently flaunts a Zacks Rank of 1. AWI delivered a trailing four-quarter earnings surprise of 15.2%, on average. Shares of the company have surged 76% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Armstrong World Industries’ EPS for 2024 has increased to $5.89 from $5.74 over the past 30 days.
Frontdoor, Inc. (FTDR - Free Report) currently flaunts a Zacks Rank of 1. FTDR delivered a trailing four-quarter earnings surprise of 286.8%, on average. Shares of the company have gained 13.6% in the past year.
The Zacks Consensus Estimate for Frontdoor’s EPS for 2024 has increased to $2.52 from $2.36 over the past 30 days.
Advanced Drainage Systems, Inc. (WMS - Free Report) currently carries a Zacks Rank of 2 (Buy). WMS delivered a trailing four-quarter earnings surprise of a whopping 30.5%, on average. The stock has risen 86.7% in the past year.
The Zacks Consensus Estimate for Advanced Drainage Systems’ 2024 EPS has increased to $6.75 from $6.70 over the past seven days.
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PulteGroup (PHM) Surges 75% in a Year: More Upside in 2024?
Although mortgage rates continue to scale upward, the housing forecast still looks optimistic given favorable demographics, a significant housing supply shortage and the continuous solid demand trend.
Given these tailwinds, among the industry bellwethers, PulteGroup, Inc. (PHM - Free Report) has been benefiting from favorable demand conditions, a solid operating model and prudent annual land acquisition strategies.
Shares of this Zacks Rank #1 (Strong Buy) company have gained 74.9% in the past year, outperforming the Zacks Building Products - Home Builders industry’s 51.1% growth. The stock has fared better than the Zacks Construction sector and the S&P 500 Index’s 45.5% and 26.7% rallies, respectively.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate has moved north over the past 30 days as analysts increased their estimates, depicting optimism over the stock’s growth potential. Over the said time frame, the Zacks Consensus Estimate for 2024 earnings per share (EPS) has increased to $12.89 from $11.77.
This bullish trend justifies the stock’s addition to investors’ portfolios. This homebuilder has a long-term earnings growth rate of 17.7%, which highlights its inherent strength.
Let’s delve into the driving factors.
Solid Operating Model: PulteGroup is effectively managing a balance between spec (speculative) and build-to-order approaches to drive growth by maintaining a strategic mix and responding to market conditions. PulteGroup maintains a 50/50 balance between build-to-order and spec sales. This balance allows them to cater to different segments of the market, ensuring they can meet immediate demand with spec homes while also accommodating buyers who prefer to customize their homes with build-to-order options. PulteGroup tailors its approach based on the brand. For instance, Centex predominantly focuses on spec homes, while Pulte and Del Webb are more inclined toward a build-to-order approach. This differentiation helps them target various buyer preferences and market segments effectively.
Precisely, in times of higher interest rates, having spec homes allows PulteGroup to offer powerful incentives, such as forward mortgage rate commitments. These incentives can be more effectively applied to spec inventory, making them more attractive to buyers who are concerned about rising interest rates.
By balancing spec and build-to-order homes, PulteGroup is able to address diverse buyer needs, remain flexible in response to market conditions, and leverage operational efficiencies to drive growth.
Land Acquisition: PulteGroup’s strategic focus on land acquisition is a major growth driver, boosting volumes, revenues, and profitability. In 2023, the company invested $4.3 billion in land acquisition and development, continuing with $1.1 billion in the first quarter of 2024. Of this, 60% was directed toward developing existing land assets. For 2024, PulteGroup plans to spend about $5 billion on land, maintaining a 60/40 split between development and new acquisitions. This strategy aligns with the company's goal of increasing future delivery volumes by 5-10% annually, ensuring sustained growth and enhanced profitability.
Focus on Affordability: PulteGroup is strategically focused on meeting the growing demand for entry-level homes, addressing affordability concerns in the U.S. housing market. This emphasis on lower-priced homes has significantly boosted profitability. In the first quarter of 2024, first-time buyers made up 41% of PulteGroup's customers, with 36% being move-up buyers and 23% active adults. This shift toward a higher proportion of first-time buyers aligns with the company's strategy to ensure that over one-third of its business caters to this segment, highlighting the success of its initiatives in this critical market.
Higher Return on Equity (ROE): PulteGroup’s trailing 12-month ROE is indicative of its growth potential. ROE for the trailing 12 months is 25.8%, much higher than the industry’s 15.9%, reflecting the company’s efficient usage of shareholders’ funds.
Other Key Picks
Some other top-ranked stocks that warrant a look in the sector are as follows:
Armstrong World Industries, Inc. (AWI - Free Report) currently flaunts a Zacks Rank of 1. AWI delivered a trailing four-quarter earnings surprise of 15.2%, on average. Shares of the company have surged 76% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Armstrong World Industries’ EPS for 2024 has increased to $5.89 from $5.74 over the past 30 days.
Frontdoor, Inc. (FTDR - Free Report) currently flaunts a Zacks Rank of 1. FTDR delivered a trailing four-quarter earnings surprise of 286.8%, on average. Shares of the company have gained 13.6% in the past year.
The Zacks Consensus Estimate for Frontdoor’s EPS for 2024 has increased to $2.52 from $2.36 over the past 30 days.
Advanced Drainage Systems, Inc. (WMS - Free Report) currently carries a Zacks Rank of 2 (Buy). WMS delivered a trailing four-quarter earnings surprise of a whopping 30.5%, on average. The stock has risen 86.7% in the past year.
The Zacks Consensus Estimate for Advanced Drainage Systems’ 2024 EPS has increased to $6.75 from $6.70 over the past seven days.