Here's Why You Should Buy PulteGroup (PHM) Stock Right Now
The housing market has been going strong lately, courtesy of steady job growth and gradual economic recovery. One such company cashing in on the favorable backdrop is PulteGroup Inc. PHM. PulteGroup’s shares have gained 37.4% in the last six months, outperforming the industry’s 29.6% rally. Also, the company has outperformed the industry in all the other time frames we considered — 12-week and 52-week.
Moreover, earnings estimates have moved north in the last few weeks reflecting investors’ optimism on PulteGroup. Over the last 30 days, the Zacks Consensus Estimate for 2018 earnings increased 3.6%. This bullish analysts’ sentiment justifies the company’s Zacks Rank #1 (Strong Buy) and why we are expecting it to outperform in the near term. You can see the complete list of today’s Zacks #1 Rank stocks here.
Notably, this homebuilder shows strengths in several key areas.
What Makes PulteGroup a Solid Pick?
Prudent Land Strategy: PulteGroup’s annual land acquisition expenditure doubled from $600 million or 11% of revenues in 2013 to $1.2 billion or 21% of revenues in 2015. These investments have resulted in improved volumes, revenues and profitability in 2016, a trend that is likely to continue over the next few years. In the first nine months of 2017, the company spent $773 million in land acquisition. It had projected to spend approximately $1.1 billion on land acquisition and $1.6 billion on land development (up around 10%) in 2017.
The company expects to realize higher returns on invested capital, given it plans of moderating the rate of land spend, increase the use of land options where possible, and accelerate inventory turns.
Impressive Expected Earnings & Revenue Growth: Apart from prudent land investments, the company has been taking initiatives to improve its operating and financial performance. These initiatives include improving overhead leverage, increasing inventory turns and implementing new pricing strategies. These initiatives have helped in driving profits. Earnings in the last reported quarter increased a solid 40% from the year-ago level. The upside was supported by higher demand despite disruptions caused by hurricanes Harvey and Irma.
The homebuilder’s earnings for 2018 are expected to increase 42.5% year over year, thereby making it a great pick in terms of growth investment. The company’s projected sales growth is a healthy 20%.
The company also has a three-five year expected EPS growth rate of 17.1%.
Higher Return on Equity: PulteGroup’s trailing 12-month return on equity (ROE) supports its growth potential. ROE in the trailing 12 months has been 14.4%, while the industry has gained 10.8%, reflecting the company’s efficient usage of shareholders’ funds.
Solid VGM Score: PulteGroup has a VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics. In fact, our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) make solid investment choices.
Solid Industry Fundamental: The housing/homebuilding industry has been riding high on steady job and wage growth, historically low mortgage rates and rapidly increasing household formation. The positive momentum is evident from the robust Zacks Industry Rank (Top 27% out of 256 industries).
New and existing home sales got a major boost in November 2017, suggesting that the market is regaining momentum after hurricanes Harvey and Irma temporarily stalled activity. A strong job market and solid U.S. economy have ensured consistent gains for homebuilding stocks.
Other Stocks to Consider
Investors can also consider other stocks in the Zacks Construction sector that includes Century Communities, Inc. CCS, with a Zacks Rank #1, and Cementos Pacasmayo S.A.A. CPAC and NVR, Inc. NVR, both carrying a Zacks Rank #2.
Full-year 2018 earnings for Century Communities is likely to rise 72.4%, while that of Cementos Pacasmayo are expected to increase 41.9%.
NVR is expected to witness 16.8% growth in 2018 earnings.
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Cementos Pacasmayo S.A.A. (CPAC) : Free Stock Analysis Report
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