On Jul 2, Zacks Investment Research upgraded
) to a Zacks Rank #1 (Strong Buy). The share price has surged on
the back of a strengthening homebuilding market and a bright
outlook for the year.
Why the Upgrade?
Stocks of homebuilders like Pulte,
D.R. Horton, Inc.
) have rallied strongly since mid-2012 as the U.S. housing market
has seen significant upside in new home construction activity.
The housing market has steadily made a comeback from the lows
witnessed in mid-2006 caused by the severe and widespread
Despite recent concerns over rising interest rates, U.S. home
demand is increasing as increased rentals and historically low
mortgage interest rates have improved the affordability of homes.
Moreover, a sense of urgency to buy a new home before interest
rates shoot up further is also pushing up demand. However, supply
remains limited by low home inventories, both for new and
existing homes. Home prices have thus moved up sharply with
market demand gaining momentum and supply remaining limited.
Subsequently, the broader housing market has enjoyed a strong
rally, reflected in the homebuilder ETF, SPDR S&P
Homebuilders (XHB), jumping more than 70% since Jan 2012.
Some stronger-than-expected housing data released recently is
also encouraging. The National Association of Home Builders/Wells
Fargo Housing Market Index (HMI), known as the homebuilder
sentiment index, jumped a robust 8 points to 52 in June from 44
in May. The index crossed the 50 mark for the first time since
the downturn that began in mid-2006 and was also the biggest
monthly increase since 2002. The index reflects much better sales
expectations as the demand for new homes increases.
Large homebuilders like Pulte are thus witnessing increasing
traffic levels due to heightened consumer demand. Most
homebuilding companies are witnessing a significant growth in
both volumes and average selling prices.
In fact, Pulte has beaten the Zacks Consensus Estimate in all
the past four quarters with an impressive average earnings
surprise of 58.98%. Pulte's strategic initiatives to expand
margins, improve overhead leverage, increase inventory turns and
improve returns are helping it to better capitalize on the
housing market recovery. We believe its significant land
positions, broad geographic and product diversity and a better
capital position will enable it to take maximum advantage of the
D R HORTON INC (DHI): Free Stock Analysis
LENNAR CORP -A (LEN): Free Stock Analysis
PULTE GROUP ONC (PHM): Free Stock Analysis
TOLL BROTHERS (TOL): Free Stock Analysis
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