On Jun 5, 2014, we issued an updated research report on
On Apr 24, the national homebuilder reported weak first-quarter
2014 results, missing the Zacks Consensus Estimate for both
earnings and revenues.
Pulte's first-quarter earnings of 19 cents per share lagged the
Zacks Consensus Estimate as well as the year-ago figure of 21 cents
per share by 9.5%, owing to weak top line, higher SG&A ratio
and higher-than-expected tax rate. Revenues also lagged the Zacks
Consensus Estimate. Pulte's Homebuilding revenues declined 3.5% due
to order shortfall and lower number of homes delivered. Though
improving sequentially this quarter, Pulte's order trends have
remained weak for several quarters versus competitors due to lower
Pulte intentionally slowed down sales pace across some of its
communities (in turn lowering community count) due to lack of land
development and scarcity of finished lots. Housing inventory, both
existing and new homes, remain tight in most markets. Instead, the
company is focusing more on driving price and margin in most
This strategy, coupled with better inventory management, has
consistently improved Pulte's margins, which in turn increased its
cash flows in the last two years.
Moreover, pricing has been going up due to a change in mix
toward steeply-priced/higher margin move-up and active-adult homes
and the company's strategic pricing initiatives.
However, though Pulte's pricing and profits are improving, the
below-average order growth raises concern.
Moreover, increasing mortgage rates and lack of overall economic
recovery could hurt demand for new homes. Also, rising building
materials and labor costs are an increasing margin headwind.
Key Picks from the Sector
Pulte currently carries a Zacks Rank #3 (Hold). Better-ranked
stocks in the construction sector include
TRI Pointe Homes, Inc.
) carrying a Zacks Rank #2 (Buy). In the broader building products/
), sporting a Zacks Rank #1 (Strong Buy) is worth mentioning.
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PULTE GROUP ONC (PHM): Free Stock Analysis
GIBRALTAR INDUS (ROCK): Free Stock Analysis
TRI POINTE HOME (TPH): Free Stock Analysis
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