Can PulteGroup (PHM) Pull a Surprise this Earnings Season?

PulteGroup, Inc . PHM , engaged in the homebuilding and financial services, is scheduled to report fourth-quarter and full-year 2016 results on Jan 26, before the opening bell.

Last quarter, the company's earnings were in line with expectations. Also, PulteGroup surpassed estimates in three of the past four quarters, resulting in an average positive surprise of 13.11%.

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

Factors to Consider

PulteGroup's management is positive about the housing industry and believes that demand will increase at a slow and steady pace over the next several years, supported by improving economic conditions, job creation and low interest rates. The company expects its previous land investment to position it well for consistent earnings growth.

As revealed during the third quarter of 2016 earnings call, the company expects fourth-quarter 2016 gross margin in the range of 20.5% to 21% compared to 23.5% reported in the prior year quarter. Further, it expects to maintain this range for full-year 2017 owing to higher labor and material costs.

Again, it anticipates, full-year SG&A ratio at around 10% of homebuilding revenues, higher than 9.1% (excluding 110 basis points related to certain legal settlements and reserve reversals) in 2015.

Nonetheless, higher closing volumes and average selling price are expected to boost earnings in 2016. Also, the share repurchase plans in the fourth quarter of 2016 and in 2017 bode well for earnings.

For 2016, the company anticipates expenditures on land acquisitions, including the purchase of Wieland assets, to total $1.6 billion which can be expected to improve volumes, revenues and profitability.

Pulte is also maximizing the value of its land assets by selling houses at higher prices and better margins, thereby using the resulting strong cash flow to invest in the business, pay off debt and systematically return to shareholders.

Meanwhile, for the fourth quarter, the Zacks Consensus Estimate for earnings is pegged at 58 cents a share, reflecting an increase of 2.3% year over year, while the consensus for revenues is at $2.33 billion, implying 13.0% year-over-year growth.

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 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: PulteGroup has an Earnings ESP of 0.00%. That is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 58 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: PulteGroup has a Zacks Rank #3 which increases the predictive power of ESP. However, the company's 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

PulteGroup, Inc. Price and EPS Surprise

PulteGroup, Inc. Price and EPS Surprise | PulteGroup, Inc. Quote

Stocks to Consider

Here are some companies in the broader construction sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

AECOM ACM , with an Earnings ESP of +1.89% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Chicago Bridge & Iron Company N.V. CBI , with an Earnings ESP of +3.45% and a Zacks Rank #2.

Toll Brothers Inc. TOL , with an Earnings ESP of +8.57% and a Zacks Rank #3.

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AECOM (ACM): Free Stock Analysis Report

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

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

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