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In the first quarter of 2024, PulteGroup demonstrated strong resilience in a high-rate environment. The company exceeded expectations with a 21.6% beat in earnings per share (EPS) and 10.1% in revenues. Year over year, adjusted EPS and revenues grew 22.1% and 10.4%, respectively. Despite market challenges, PulteGroup saw a 14% rise in net orders, increased net pricing in half of its communities, and achieved a record first-quarter gross margin of 29.6%, exceeding guidance.
PulteGroup has an impressive track record of surpassing earnings expectations, exceeding the consensus mark in each of the last four quarters. The average surprise over this period is 12.5%, as shown in the chart below.
Image Source: Zacks Investment Research
Trend in Estimate Revision
The Zacks Consensus Estimate for the second-quarter EPS has remained unchanged at $3.20 over the past 60 days. The estimated figure indicates a 6.7% increase from the year-ago EPS of $3.00. Also, the consensus mark for revenues is $4.48 billion, indicating 6.9% year-over-year growth.
Image Source: Zacks Investment Research
What the Zacks Model Unveils
Our proven model does not 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. This is not the case here, as you will see below.
Earnings ESP: PHM has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Low-existing homes for sale have been driving demand for new homes in the market. Along with this market tailwind, PulteGroup’s cyclically resilient operating model, effective pricing strategy and mortgage rate buydown program are expected to have positively impacted the company’s top line in the second quarter.
Notably, 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. Also, its mortgage rate buydown program is expected to have enhanced PulteGroup's market appeal and sales performance in the to-be-reported quarter amid the challenging higher mortgage rate environment. Meanwhile, the company has been effectively increasing prices, thereby helping to boost its revenues.
PulteGroup expects home deliveries to be approximately 7,800-8,200 units compared with 7,518 homes delivered a year ago. Our model predicts deliveries to grow 6.3% year over year to 7,992 units.
PHM expects a higher average selling price or ASP for the quarter between $540,000 and $550,000 compared with the year-ago level of $540,000. Our model predicts the ASP of homes delivered to inch up 0.5% year over year to $542,500.
We expect the Homebuilding revenues to grow 6.7% to $4.37 billion from $4.09 billion a year ago due to higher deliveries and ASP.
From the margin perspective, high costs associated with labor are expected to have weighed on margins to some extent. That said, prudent cost-saving efforts might have partly mitigated the risks.
The company expects homebuilding gross margins of 29.2% for the quarter compared with 29.5% reported in the year-ago period. Our model predicts homebuilding gross margins to be 29.2% for the quarter, down 30 basis points from the year-ago period.
We expect SG&A (as a percentage of home sales revenues) to be 10%, higher than 7.8% reported in the prior-year quarter.
Meanwhile, we expect the company’s new orders to grow 7% year over year to 8,501 units in the quarter.
Price Performance & Valuation
PHM’s stock has exhibited an upward movement in the year-to-date period. The stock has gained 20.9% compared with the industry’s rise of 12.3% in the same time frame. Other prominent players in the industry, like NVR, Inc. (NVR - Free Report) , Toll Brothers, Inc. (TOL - Free Report) and Lennar (LEN - Free Report) , have outperformed the industry over the same time frame.
YTD Price Performance
Image Source: Zacks Investment Research
Let's assess the value PHM offers to investors at its current levels.
Presently, PHM is trading at a forward 12-month earnings multiple of 9.48X, which is above its five-year median of 7.66X. In comparison, the industry's forward earnings multiple is 10.63X. This suggests that while PHM's valuation appears somewhat high relative to its historical range, it remains slightly undervalued when compared to the industry average.
Image Source: Zacks Investment Research
Investment Thoughts
PulteGroup caters to three distinct market segments — first-time homebuyers, homeowners upgrading to larger properties, and active-adult housing. Unlike smaller builders, the company boasts superior resources. Despite uncertainties in the homebuilding sector, PulteGroup has demonstrated operational stability and growth, surpassing the S&P 500 performance this year so far. Its financial robustness is underscored by a well-balanced operational framework, effectively managing a 50/50 mix of speculative and build-to-order sales.
The company's mortgage rate buydown program, offering competitive 30-year fixed-rate mortgages utilized by 25% of buyers, has been well-received. This initiative helps mitigate the impact of high interest rates on home affordability. Moreover, PulteGroup's pricing strategy has proven effective, maintaining stable or improving pricing dynamics across most markets. These factors have led to enhanced margins and better net pricing in early 2024.
With a valuation of less than 10 times forward earnings, PulteGroup's stock remains attractively priced relative to the market. The company has a strong track record of quarterly dividend payments spanning nearly four decades, reflecting its commitment to returning cash flows to shareholders while maintaining financial stability. Investors holding PulteGroup stock are advised to retain their positions.
However, elevated borrowing costs are currently dampening home sales and builder sentiment, presenting challenges for housing investments. While there is optimism about PulteGroup's potential to deliver substantial returns, caution is warranted due to uncertainties surrounding the timing of Federal Reserve rate cuts. Furthermore, the absence of positive EPS estimate revisions in the past 60 days indicates bearish sentiment. Given these market uncertainties, prospective investors are advised to await a more opportune entry point into PulteGroup.
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PulteGroup (PHM) Stock Before Q2 Earnings: Buy, Sell, or Hold?
PulteGroup Inc. (PHM - Free Report) is scheduled to report second-quarter 2024 results on Jul 23, before the opening bell.
In the first quarter of 2024, PulteGroup demonstrated strong resilience in a high-rate environment. The company exceeded expectations with a 21.6% beat in earnings per share (EPS) and 10.1% in revenues. Year over year, adjusted EPS and revenues grew 22.1% and 10.4%, respectively. Despite market challenges, PulteGroup saw a 14% rise in net orders, increased net pricing in half of its communities, and achieved a record first-quarter gross margin of 29.6%, exceeding guidance.
PulteGroup has an impressive track record of surpassing earnings expectations, exceeding the consensus mark in each of the last four quarters. The average surprise over this period is 12.5%, as shown in the chart below.
Image Source: Zacks Investment Research
Trend in Estimate Revision
The Zacks Consensus Estimate for the second-quarter EPS has remained unchanged at $3.20 over the past 60 days. The estimated figure indicates a 6.7% increase from the year-ago EPS of $3.00. Also, the consensus mark for revenues is $4.48 billion, indicating 6.9% year-over-year growth.
Image Source: Zacks Investment Research
What the Zacks Model Unveils
Our proven model does not 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. This is not the case here, as you will see below.
Earnings ESP: PHM has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Factors Influencing Q2 Performance
Low-existing homes for sale have been driving demand for new homes in the market. Along with this market tailwind, PulteGroup’s cyclically resilient operating model, effective pricing strategy and mortgage rate buydown program are expected to have positively impacted the company’s top line in the second quarter.
Notably, 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. Also, its mortgage rate buydown program is expected to have enhanced PulteGroup's market appeal and sales performance in the to-be-reported quarter amid the challenging higher mortgage rate environment. Meanwhile, the company has been effectively increasing prices, thereby helping to boost its revenues.
PulteGroup expects home deliveries to be approximately 7,800-8,200 units compared with 7,518 homes delivered a year ago. Our model predicts deliveries to grow 6.3% year over year to 7,992 units.
PHM expects a higher average selling price or ASP for the quarter between $540,000 and $550,000 compared with the year-ago level of $540,000. Our model predicts the ASP of homes delivered to inch up 0.5% year over year to $542,500.
We expect the Homebuilding revenues to grow 6.7% to $4.37 billion from $4.09 billion a year ago due to higher deliveries and ASP.
From the margin perspective, high costs associated with labor are expected to have weighed on margins to some extent. That said, prudent cost-saving efforts might have partly mitigated the risks.
The company expects homebuilding gross margins of 29.2% for the quarter compared with 29.5% reported in the year-ago period. Our model predicts homebuilding gross margins to be 29.2% for the quarter, down 30 basis points from the year-ago period.
We expect SG&A (as a percentage of home sales revenues) to be 10%, higher than 7.8% reported in the prior-year quarter.
Meanwhile, we expect the company’s new orders to grow 7% year over year to 8,501 units in the quarter.
Price Performance & Valuation
PHM’s stock has exhibited an upward movement in the year-to-date period. The stock has gained 20.9% compared with the industry’s rise of 12.3% in the same time frame. Other prominent players in the industry, like NVR, Inc. (NVR - Free Report) , Toll Brothers, Inc. (TOL - Free Report) and Lennar (LEN - Free Report) , have outperformed the industry over the same time frame.
YTD Price Performance
Image Source: Zacks Investment Research
Let's assess the value PHM offers to investors at its current levels.
Presently, PHM is trading at a forward 12-month earnings multiple of 9.48X, which is above its five-year median of 7.66X. In comparison, the industry's forward earnings multiple is 10.63X. This suggests that while PHM's valuation appears somewhat high relative to its historical range, it remains slightly undervalued when compared to the industry average.
Image Source: Zacks Investment Research
Investment Thoughts
PulteGroup caters to three distinct market segments — first-time homebuyers, homeowners upgrading to larger properties, and active-adult housing. Unlike smaller builders, the company boasts superior resources. Despite uncertainties in the homebuilding sector, PulteGroup has demonstrated operational stability and growth, surpassing the S&P 500 performance this year so far. Its financial robustness is underscored by a well-balanced operational framework, effectively managing a 50/50 mix of speculative and build-to-order sales.
The company's mortgage rate buydown program, offering competitive 30-year fixed-rate mortgages utilized by 25% of buyers, has been well-received. This initiative helps mitigate the impact of high interest rates on home affordability. Moreover, PulteGroup's pricing strategy has proven effective, maintaining stable or improving pricing dynamics across most markets. These factors have led to enhanced margins and better net pricing in early 2024.
With a valuation of less than 10 times forward earnings, PulteGroup's stock remains attractively priced relative to the market. The company has a strong track record of quarterly dividend payments spanning nearly four decades, reflecting its commitment to returning cash flows to shareholders while maintaining financial stability. Investors holding PulteGroup stock are advised to retain their positions.
However, elevated borrowing costs are currently dampening home sales and builder sentiment, presenting challenges for housing investments. While there is optimism about PulteGroup's potential to deliver substantial returns, caution is warranted due to uncertainties surrounding the timing of Federal Reserve rate cuts. Furthermore, the absence of positive EPS estimate revisions in the past 60 days indicates bearish sentiment. Given these market uncertainties, prospective investors are advised to await a more opportune entry point into PulteGroup.