PulteGroup Inc. (PHM) is set to report fourth-quarter and full year 2014 results on Jan 29, before the market opens. Last quarter, it posted a positive surprise of 2.78%. Let’s see how things are shaping up for this announcement.
Factors to Consider this Quarter
This Atlanta-based company has been reporting a persistent decline in orders and lower number of homes for the past few quarters. Pulte’s order trends have been unimpressive due to supply constraints in many markets, which in turn are hurting its community count.
In addition, its third quarter gross margin was down due to lower margin Dominion closings, unexpected costs related to closeout of some legacy communities and modestly negative mix. Pulte expects a further drag of 50–100 bps over the upcoming fourth quarter 2014 and first quarter 2015 from the remaining Dominion closings. Gross margin is expected to be “choppy and volatile” from the fourth quarter onward as favorable pricing dynamics could be offset by higher labor costs and trade pressures in the near term.
Nevertheless, the homebuilding company has been enjoying strong pricing power for the past few quarters, which has been driving its revenue. Pulte’s strategic pricing programs allow buyers to select the lots and options that they value most, resulting in higher selling prices of homes. This tailwind is expected to impact the results in the to-be reported quarter.
Earnings Whisper?
Our proven model does not conclusively show that PulteGroup is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 41 cents.
Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 increase the predictive power of ESP, PulteGroup’ ESP of 0.00% makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other building/construction related companies that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:
Toll Brothers Inc. (TOL) with an Earnings ESP of +6.67% and a Zacks Rank #3 (Hold).
Potlatch Corporation (PCH) with an Earnings ESP of +7.50% and a Zacks Rank #3
United Rentals, Inc. (URI) with an Earnings ESP of +3.54% and a Zacks Rank #3
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