PulteGroup Inc. (PHM) recently reached a new all-time high after reporting solid second quarter results, which included a 160% earnings surprise. This leading U.S homebuilder achieved a Zacks #1 Rank (Strong Buy) on July 27, 2012, a day after its earnings announcement.
This stock looks to have good momentum potential moving forward, given its bullish growth projection for the second half, backed by a gradually recovering homebuilding market and consistently rising estimates.
Solid Second Quarter Beat
On July 26, 2012, Pulte reported adjusted earnings of $0.13 per share for the second quarter, which reversed a loss in the preceding quarter. Earnings also beat the Zacks Consensus Estimate of 5 cents and were significantly better than an adjusted loss of 4 cents in the prior-year quarter.
Improved homebuilding revenues, expanded margins and the company’s cost reduction and operating efficiency initiatives led to Pulte’s strongest earnings performance in the past five years. Over the past seven quarters, Pulte has surpassed the Zacks Consensus Estimate four times and matched three times, resulting in an average earnings surprise of 9.8%.
Pulte reported total revenue of $1.07 billion in the second quarter, up 15% from the prior-year quarter due to solid homebuilding revenues. Pulte’s homebuilding revenues, derived from popular brands like Pulte Homes, Centex and Del Webb, rose by 14.3% to $1.03 billion, driven by an increase in new home orders and average selling prices.
New home orders were up 32% year over year and 12% sequentially. The boom in the net order book was attributed to a stabilizing recovery in the housing market. This was backed by low home prices and moderating interest rates, while renting became a more expensive option.
Adjusted homebuilding gross margins expanded 320 basis points over the prior-year and 160 basis points sequentially to 20.3% of home sale revenues. It was driven by pricing benefits, operating efficiency improvement initiatives and a better mix of sales, particularly of move-up homes.
Earnings Estimates Going Up
Pulte’s solid second quarter earnings surprise resulted in an uptrend in estimate revisions. Over the past 7 days, the Zacks Consensus Estimate has risen by 3.6% to 29 cents for 2012 and by 4.8% to 66 cents for 2013.
Overall, an Attractive Valuation
Pulte currently trades at a forward price-to-earnings (P/E) of 37.28x, reflecting a 33.7% premium to the peer group average of 27.88x. However, on a price-to-sales basis, the shares trade at 1.06x, a 14.5% discount to the peer group average of 1.24. On the whole the stock is attractive as it has a trailing 12-month return on equity (ROE) of 6.3%, which is above its peer group average of 4.1%.
Chart Echoing Strength
Shares of Pulte have been continuously rising since early June 2012 and took a sharp jump after the second quarter earnings release. The stock price has almost quadrupled since the mid-October lows when the company was facing a fragile housing market. Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $9.79 and $8.05, respectively. In fact, the stock has been consistently trading above its 200-day moving average since the end of December 2011 and above its 50-day moving average since the end of June 2012.
Volume is very strong, averaging roughly 13268K daily. Pulte has mostly outperformed the S&P 500 over the past six months. The year-to-date return for the stock is 90.32% compared with the S&P 500’s return of 10.21%.
Based in Bloomfield Hills, Michigan, Pulte engages in the homebuilding and financial services businesses, primarily in the U.S. The company conducts its operations in two primary business segments – Homebuilding and Financial Services. The Homebuilding segment offers a wide variety of home designs including single family detached, townhouses, condominiums, and duplexes at different prices, with a variety of options and amenities to all major customer segments: first-time, move-up, and active adult. It has delivered nearly 600,000 homes. The company operates in more than 60 markets across the U.S. The market cap of the company is $4.61 billion.
PULTE GROUP ONC (PHM): Free Stock Analysis Report
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