Can PulteGroup Inc. (PHM) Surprise This Earnings Season? - Analyst Blog


Shutterstock photo

PulteGroup Inc. ( PHM ) is set to report second-quarter 2014 results on Jul 24, before the market opens. Last quarter, it had delivered a negative earnings surprise of (9.52%).

Let's see how things are shaping up for this announcement.

Factors to Consider This Quarter

Pulte's order trends have remained weak for several quarters versus competitors due to lower community count. Pulte is facing supply constraints in many markets, which in turn, has lowered its community count. This weak order trend is expected to continue in the upcoming quarter.

The company has intentionally slowed down sales pace across some of its communities due to lack of land development and scarcity of finished lots. Shortage of buildable lots, skilled labor and capital for smaller builders are limiting the production of homes, thereby lowering inventory of both new and existing homes. Instead, the company is focusing more on driving price and margin in most communities. Though this strategy has been hurting net order growth, it has been resulting in consistent margin expansion for the past 13 quarters.

In the past quarters, gross margin expansion has been driven by improved pricing, shift in mix towards move up homes and reduction in construction cost. Margins also benefited from a decline in discounts. Pulte expects margins to continue to expand in the coming quarters benefiting from lower interest expenses, improved pricing, shift toward move up buyers and increasing land values, partially offset by increased land and construction cost in 2014.

Earnings Whispers?

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 #1 (Strong Buy), 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%.

Zacks Rank: PulteGroup's Zacks Rank #3 (Hold) when combined with a 0.00% ESP 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

Other stocks in the building/ construction sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

Martin Marietta Materials Inc. ( MLM ), with an Earnings ESP of +2.44% and a Zacks Rank #2 (Buy).

United Rentals, Inc. ( URI ), with an Earnings ESP of +2.38% and a Zacks Rank #2.

Curtiss-Wright Corp. ( CW ), with an Earnings ESP of +1.28% and a Zacks Rank #2.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

PULTE GROUP ONC (PHM): Free Stock Analysis Report

MARTIN MRT-MATL (MLM): Free Stock Analysis Report

CURTISS WRIGHT (CW): Free Stock Analysis Report

UTD RENTALS INC (URI): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
More Headlines for: PHM , MLM , CW , URI

More from


Equity Research
Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by