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PulteGroup (PHM) to Report Q4 Earnings: What's in the Cards?

Zacks Equity Research

PulteGroup Inc. PHM is slated to report fourth-quarter 2018 results on Jan 29, before the opening bell. In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 6.3%. Moreover, both its top and bottom lines increased 24.3% and 74%, respectively, on a year-over-year basis.

Notably, the company surpassed estimates in each of the trailing six quarters, with average positive surprise of 11.3%.

PulteGroup, Inc. Price and EPS Surprise

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

How are Estimates Faring?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for the quarter to be reported is currently pegged at $1.09 per share, having declined 0.9% over the past 30 days. Nevertheless, the said figure reflects an increase of 28.2% from the year-ago earnings of 85 cents per share. Revenues are expected to be $2.93 billion, up 4.7% year over year.

Let’s See How Things are Shaping Up for This Announcement

PulteGroup’s annual land-acquisition strategies bode well for the company’s overall top-line performance, as is evident from its nine-month revenue growth figure of 24.3%. The company’s land-acquisition strategy stresses on investing in shorter-lived smaller land assets and increasing land options, thereby mitigating market risk. Notably, its land sale revenues grew an impressive 163% year over year in the first nine months of 2018. The company remains optimistic about land-acquisition spend, which is likely to enable it to grow nearly 10% in full-year 2018.

That said, affordability concerns and gradually rising mortgage rates are plaguing the U.S. housing industry of late. Although buyers’ interest remains high, rising interest rates and affordability concerns mar the growth prospects of the company. Meanwhile, rising land, labor and material costs are also a major cause of concern. These ongoing market headwinds are expected to have impacted the quarter to be reported.

Nonetheless, the company remains positive on ongoing traffic trends. Notably, buyer traffic increased year over year to 15% in the last reported quarter. This indicates higher inclination of buyers. It continues to experience strong demand, courtesy of solid economic fundamentals and financing availability. For the to-be-reported quarter, the company expects deliveries to increase within 6,500-6,800 homes from 6,632 in the year-ago period. Moreover, the consensus estimate for fourth-quarter deliveries is pegged at $6.67 billion, up 0.6% year over year.

The consensus estimate for Homebuilding revenues of $2.85 billion also reflects growth from $2.74 billion a year ago and $2.6 billion in the last reported quarter. The consensus mark for Financial Services revenues of $60 million also reflects a year-over-year increase of 7.1%.

Meanwhile, PulteGroup has undertaken various cost-saving initiatives to improve operating and financial performance. These initiatives include improving overhead leverage, increasing inventory turns and implementing new pricing strategies, which are expected to boost profits in the quarter to be reported.

Homebuilding SG&A expenses, as a percentage of home sale revenues, contracted 190 basis points (bps) over the last three quarters. Also, adjusted gross margin increased 310 bps in the said period.

Considering higher revenue expectation as well as prudent cost-saving initiatives, the company’s bottom line is expected to increase significantly in the soon-to-be-reported quarter.

What the Zacks Model Says

Our proven model does not show that PulteGroup is likely to beat estimates in the quarter to be reported. This 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.

Earnings ESP: PulteGroup has an Earnings ESP of -4.59%. 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.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks Worth a Look

Here are some companies in the Zacks Building Products - Home Builders industry, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Meritage Corporation MTH has an Earnings ESP of +1.08% and carries a Zacks Rank #3. The company is slated to report quarterly numbers on Jan 30.

Century Communities, Inc. CCS has an Earnings ESP of +6.05% and holds a Zacks Rank #3. The company is slated to report quarterly results on Feb 7.

Taylor Morrison Home Corporation TMHC has an Earnings ESP of +25.00% and a Zacks Rank #3. The company is expected to report quarterly numbers on Feb 6.

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