On Sep 17, we downgraded our recommendation on
) to Underperform from Neutral following weak second-quarter
Why the Downgrade?
Pulte announced weak second-quarter results on Jul 25, missing
the Zacks Consensus Estimate for both earnings and revenues.
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 Zacks
Consensus Estimate due to disappointing net order growth.
Net orders declined 12% due to a lower community count as the
company has been intentionally slowing down sales in some markets
due to the 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, which, we believe, has
affected net order growth in the quarter. Despite seeing strong
demand, the company purposely closed sales in more than 50% of
the open communities in markets like Arizona, Nevada and Southern
California in exchange for better pricing. In these markets, the
company sold 400 fewer units in the quarter which contributed
significantly to the order decline. Pulte's net order decline was
a sharp contrast to double-digit increases reported by other
Rising mortgage rates also had a negative impact on order
trends in 15% of Pulte's communities. Though pricing increased
sharply in the quarter, the net order decline raises 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, recent increases in mortgage rates, changes in
federal lending procedure and the lack of overall economic
recovery could hurt demand for new homes.
Other Stocks to Consider
Pulte carries a Zacks Rank #5 (Strong Sell). Another
), carries a Zacks Rank #2 (Buy) and is worth considering.
Building products companies,
), also carry a Zacks Rank #2 (Buy).
MASCO (MAS): Free Stock Analysis Report
MERITAGE HOMES (MTH): Free Stock Analysis
PGT INC (PGTI): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis
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