Recently, PulteGroup, Inc. (PHM) declared that it will redeem over $170 million of outstanding notes on December 26, 2012. The company intends to redeem $62.7 million of 6.250% outstanding notes issued by PulteGroup Inc, due on 2/15/2013 and $107.7 million of 5.125% outstanding notes issued by Centex Corp, due on 10/01/2013.
Given the company’s strong liquidity position, PulteGroup intends to fund the redemption of outstanding notes with the available cash balance. The company had cash and cash equivalents of $1.56 billion as of September 30, 2012. Also, the company recently completed a tender offer of $222 million in outstanding notes.
Following the redemption, PulteGroup would have dissolved $489 million of outstanding debt in 2012 by using cash on hand. In addition, the company plans to invest more than $1.0 billion in land development and acquisition.
PulteGroup is benefiting from stabilizing recovery in the housing market as well as its cost reduction and operating efficiency improvement plans. Moderating interest rates have ensured that people choose to purchase homes instead of renting one.
As a result, the company witnessed a significant increase in its net order bookings in the third quarter of 2012. The 27% net order increase was realized in spite of a 7% decline in the number of communities. In fact, the inventory level of the housing industry is declining and there may not be adequate number of homes in the market to meet the rising demand. As such the company is now focused on increasing its spending on land, thus improving its position to capitalize on the rising demand associated with housing market recovery.
We are encouraged by PulteGroup’s bullish growth projection for the upcoming quarters, backed by the gradually recovering homebuilding market. We believe that homebuilders like PulteGroup and Lennar Corporation (LEN), who have significant land positions, broad geographic and product diversity, and better capital positions, are expected to benefit the most as market conditions improve.
We currently have a Neutral recommendation on PulteGroup Inc. The stock carries a Zacks #2 Rank (a short-term Buy rating).
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