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PulteGroup to Commence South Village Project Next Month

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PulteGroup, Inc.PHM is set to develop the for-sale residential component of Pappas Properties' Scaleybark mixed-use project.

As part of the project, named South Village, PulteGroup will develop 58 townhouses on a portion of the 8-acre plot at the juncture of South Boulevard and Clanton Road. Pulte bought the site for $4.2 million on Dec 1 and will break ground on the project in Jan 2017.

These townhouses will be four stories and will include two floor plans, one with a front kitchen and one with a rear kitchen. The first prototype home at South Village is expected to open in fall 2017.

PulteGroup was successful with some of its other infill townhouse projects in town, comprising Park South Station in south Charlotte and Midwood Square in Plaza Midwood. Jon Cherry, PulteGroup's Charlotte division president, expects similar success with South Village. The village is near the Lynx Blue Line Scaleybark Station that goes well with the entry-level buyer.

Q3 Recall

This is worth mentioning that PulteGroup's homebuilding revenues rose 29.1% year over year during third-quarter 2016. The company stated that the overall housing demand remained positive on the back of a low interest rate environment and general improvement in the economic environment. The company also believes that demand will continue to increase in the days ahead.

New home orders increased 16.7% year over year to 4,775 in the quarter. Home orders increased across all operating regions, except Northeast. Value of new orders increased 25% year over year to $1.83 billion.

Company's Outlook

Management remains positive about the housing industry and believes that demand will increase at a slow and steady pace over the next several years. Improving economic conditions, job creation and low interest rates should support the rise. The company expects its previous land investment to position it well for consistent earnings growth.

However, PulteGroup's weak margin has been the pressing concern. The company has been generating weak gross margins for the last few quarters. In the third quarter, its home sales gross margin plunged 250 basis points (bps) year over year to 21.1%. In the first nine months of the year, the same dropped 180 bps year over year to 21.4%.

Fourth-quarter 2016 gross margin is projected in the range of 20.5% to 21%, lower than the prior guidance. Further, it expects to maintain this range for full-year 2017, thanks to higher labor and material costs.

Nonetheless, PulteGroup is expected to continue benefiting from its value-creation strategy as it focuses on generating solid returns, maintains strong margins, with balanced approach across its portfolio and capital allocation plans.

Investors should note that PulteGroup's shares have gained 11.28% year to date, significantly outpacing the 0.96% decline of the Zacks categorized Building-Residential/Commercial industry. This price performance is backed by balanced approach across its portfolio and capital allocation plans.

Zacks Rank & Key Picks

PulteGroup currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the construction sector include Beazer Homes USA, Inc. BZH , Hovnanian Enterprises Inc. HOV and Winnebago Industries, Inc. WGO . All the companies carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1(Strong Buy) Rank stocks here .

Fiscal 2017 revenues for Beazer are expected to increase 5%.

Hovnanian is expected to witness 28.6% growth in fiscal 2017 earnings.

Fiscal 2017 earnings for Winnebago are expected to rise 32.3%.

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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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