Zacks Investment Research downgraded
) to a Zacks Rank #5 (Strong Sell) on Sep 7, following the recent
bearish housing data releases. Moreover, the national homebuilder
reported weak second-quarter results, which have caused its
shares to lose significant value.
Why the Downgrade?
Estimates have been going down ever since Pulte reported weak
second-quarter results on Jul 25. Pulte's second-quarter 2013
earnings of 26 cents per share more than doubled from last year,
but lagged the Zacks Consensus Estimate of 29 cents by 10.3%.
Revenues also missed the estimates due to disappointing net order
Net orders were weak due to a lower community count as the
company actively slows down sales pace in some communities due to
lack of land development and scarcity of finished lots. The
company is focusing more on driving price and margin rather than
pushing up unit volumes. This, we believe, has affected net order
growth in the quarter. Rising mortgage rates also had a negative
impact on order trends in 15% of Pulte's communities. Pulte's net
order decline was a sharp contrast to double-digit increases
reported by other large homebuilders; thus raising concern.
In fact, the company saw a similar net order trend in July as
well with no major change in traffic levels and sign ups
/cancellation trends. Net orders are expected to remain soft in
some future quarters.
Moreover, a spate of weak housing data releases since late
July has created volatility in the homebuilding market. In late
August, new home sales were reported to have dropped a sharp 13%
in July, causing many homebuilding stocks like Pulte to lose
Homebuilders Slump on New Home Sales Data
Moreover, data published by the National Association of Home
Builders in mid-August showed that housing starts across the U.S.
rose 5.9% in July. However, though starts for multi-family
construction rose in the month, those for single-family
construction declined 2.2%, narrowing from the positive growth
seen in June (
Housing Starts Rise in July
). This news also pulled down share prices of homebuilders like
Pulte which are mostly involved in constructing single-family
Other Stocks to Consider
Some homebuilders with a favorable Zacks Rank are performing
well and are worth considering. These include
Standard Pacific Corp.
TRI Pointe Homes, Inc.
). All these companies carry a Zacks Rank #2 (Buy).
MERITAGE HOMES (MTH): Free Stock Analysis
PULTE GROUP ONC (PHM): Free Stock Analysis
STANDARD PAC (SPF): Free Stock Analysis
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