Factors Shaping the Fate of PulteGroup's (PHM) Q2 Earnings

PulteGroup Inc. PHM is slated to report second-quarter 2020 results on Jul 23, before the opening bell.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 5.7% but revenues missed the same by 1.6%. On a year-over-year basis, earnings and revenues grew 25.4% and 14.9%, respectively. Higher demand owing to favorable housing dynamics for most part of the first quarter, backed by lower interest rates and improved affordability, had a positive impact on PulteGroup’s performance in the quarter.

Notably, the company surpassed earnings estimates in each of the trailing 14 quarters.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has declined 2.3% to 84 cents per share over the past seven days. The said figure indicates a 2.3% decrease from the year-ago earnings of 86 cents per share. Nonetheless, the consensus mark for revenues is $2.54 billion, suggesting 2.2% year-over-year growth.

PulteGroup, Inc. Price and EPS Surprise

PulteGroup, Inc. Price and EPS Surprise

PulteGroup, Inc. price-eps-surprise | PulteGroup, Inc. Quote

Factors at Play

PulteGroup’s second-quarter Homebuilding revenues (accounting for 97.6% of total revenues) are expected to have witnessed muted growth, given disruptions caused by the coronavirus outbreak in the United States. Softness in homebuying demand due to general market uncertainty is expected to have impacted its order flow in the quarter.

Nonetheless, low mortgage rates are likely to have somewhat benefited PulteGroup. Also, increased demand for affordable housing is likely to have given a boost to its order growth to some extent. PulteGroup has been focusing on growing demand for entry-level homes, addressing the need for lower-priced homes, given affordability concerns prevailing in the U.S. housing market.

Overall, the Zacks Consensus Estimate for Homebuilding revenues of $2.57 billion suggests a 5.7% year-over-year increase. The figure also implies 14.8% sequential growth.

Meanwhile, lower average selling price (ASP) to address the affordability concern is expected to impact the company’s results to some extent. Again, higher land, labor and material costs are expected to have weighed on second-quarter 2020 margins. The consensus mark for ASP is $415,000, which points to a 3.5% year-over-year decline but 0.5% sequential growth.

Other Projections

For the quarter to be reported, the consensus mark for the number of homes closed is 6,187, which points to 10.7% year-over-year and 15.1% sequential growth. Moreover, the consensus estimate for home sale revenues is pegged at $2,553 million, implying a 6.2% rise from a year ago and 14.9% increase sequentially.

The Zacks Consensus Estimate for second-quarter 2020 new home orders is pegged at 4,266 units, pointing to a 37.2% year-over-year and 43.1% sequential decline. The same for backlog is 11,021 units, implying a 6.5% decline from the prior-year period and 12.7% decrease from the last reported quarter.

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for PulteGroup this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here as you will see below.

Earnings ESP: The company has an Earnings ESP of -14.14%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks to Consider

Here are few homebuilding companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in the upcoming releases.

D.R. Horton, Inc. DHI has an Earnings ESP of +4.33% and sports a Zacks Rank #1.

TopBuild Corp. BLD has an Earnings ESP of +13.62% and sports a Zacks Rank #1.

Martin Marietta Materials, Inc. MLM has an Earnings ESP of +3.20% and holds a Zacks Rank #3.

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PulteGroup, Inc. (PHM): 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.

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