On May 5, we issued an updated research report on PulteGroup Inc. PHM.
On Apr 23, the national homebuilder reported soft first-quarter 2015 results, missing the Zacks Consensus Estimate for both earnings and revenues.
Pulte’s first-quarter adjusted earnings of 15 cents per share declined 21.1% year over year due to lower home closings, weak gross margins, higher-than-expected taxes and higher SG&A ratio.
Homebuilding revenues rose only 1.1% as higher selling prices were partially offset by lower home closings due to construction delays in some markets resulting from unfavorable weather and tight labor resources.
Pulte's large-scale business and geographic diversity, consistently improving profitability, commitment to drive higher returns while pursuing a more balanced capital allocation approach are encouraging. Moreover, though Pulte’s order trends have remained light over the past two years, the positive increase seen over the past two quarters raises hope that volumes might improve in 2015 with the housing market growing at a slow and steady pace. New home orders increased 1% and 6%, respectively, in fourth-quarter 2014 and first-quarter 2015.
That being said, broader housing market headwinds — increasingly competitive environment and cost inflation amid moderating home prices — and the mild slowdown in sales trends in Texas/Houston markets are the concerns.
New home orders declined 5% in Texas in the first quarter due to close out of several large communities in Austin and San Antonio.
Management witnessed some slowing demand trends in Texas/Houston particularly at higher price-points. Texas’ economy is dependent on the oil complex. Low oil prices can affect consumer confidence and eventually slow down the region’s economy and thereby home sales. However, Pulte is optimistic that demand trends will pick up in the Texan market eventually as oil prices hit the bottom.
Key Picks from the Sector
Pulte carries a Zacks Rank #3 (Hold). Better-ranked stocks in building sector include Meritage Homes Corp. MTH, KB Home KBH and Toll Brothers, Inc. TOL. While Toll Brothers sports a Zacks Rank #1 (Strong Buy), the other two stocks carry a Zacks Rank #2 (Buy).
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