PulteGroup (PHM) Spikes 127% This Year: What Awaits in 2024?
PulteGroup, Inc.’s PHM stock spiked a whopping 126.7% year to date, strongly outpacing some other housing bigwigs like D.R. Horton DHI, Lennar Corporation LEN and NVR, Inc.’s NVR 69.1% and 63.8% and 52% rally, respectively. PHM has been gaining from land acquisition strategies, margin expansion moves and regular community openings in various locations.
The Zacks Building Products - Home Builders industry has surged 77.7% in the same time frame compared with the Zacks Construction sector’s 49.7% growth and the S&P 500 Index’s just 25.1% improvement.
The industry as a whole is expected to see positive housing momentum in 2024 due to the Federal government’s recent announcement and improving demographics.
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Let’s check out the factors that make PHM a queer bird among others.
Focus on Built-to-Order & Quick Move-in Homes
This notable homebuilder is grabbing attention for its solid built-to-order and quick move-in speculative home approach. The majority of PHM’s homes are sold on a built-to-order basis, which means it begins construction of the home only after signing a contract with a customer.
It also builds speculative homes in most of the communities, which allows it to compete more effectively with existing homes available in the market, especially for quick move-in buyers. The speculative home strategy for each community is based on local market factors.
In the first nine months of 2023, home sales revenues grew 8%, backed by a 4% increase in both closings and the average selling price. The increases in closings were mainly due to continued consumer demand, especially for quick move-in speculative buyers. It also witnessed a 16% improvement in net new orders in the same period due to these tailwinds.
Land Acquisition & Development Move
PulteGroup’s annual land acquisition strategies have resulted in improved volumes, revenues and profitability for quite some time now. In the first nine months of 2023, the company spent $3 billion on land acquisition and development. Considering the strong buyer demand and increase in its construction activities, PHM currently expects land spending to be nearly $4 billion in 2023. Of these, it estimates 65% to go toward the development of owned land positions.
PulteGroup’s land strategy also emphasizes investing in shorter-lived, smaller land assets while expanding the use of land option agreements when possible, thereby mitigating market risk. Consistent with its efforts to improve overall asset efficiency and reduce land risks by optioning lots, the company has successfully reduced owned land.
It ended the third quarter with 223,000 lots under control, of which 53% were controlled via option. It continues to work toward the long-term goal of owning three years of land or less. The company is focused on continuing its investment practices, boosting its returns and diminishing risk through the use of options.
Community Expansion Strategy
Changing demography has lifted demand for new homes in lower-density markets, including small metro areas, rural markets and large metro exurbs, as people seek larger homes to work from home amid the pandemic. The desire for more space and amenities to accommodate working and learning from home should continue to boost the U.S. housing market in the near term.
PHM has been expanding its reach in various markets via community openings and recently announced community openings in various locations. On Nov 29, 2023, it announced its intention to re-enter the Salt Lake City market. Beginning with two new construction communities in its Pulte Homes brand, the company will provide single-family homes and townhomes in a new master-planned community in Jordanelle Ridge, Heber. The communities are expected to open in early 2024.
Regular Dividend Increases to Boost Stockholders’ Value
PulteGroup has been paying out quarterly dividends for nearly four decades. In November 2023, it announced a quarterly dividend hike of 25% to 20 cents per share. The dividend will be payable on Jan 3, 2024 to its shareholders of record as of the close of the business on Dec 19, 2023.
In the first nine months of 2023, PulteGroup declared cash dividends of $106.8 million and repurchased 10.2 million shares under the repurchase authorization for $700 million. On Apr 24, 2023, its board of directors increased the share repurchase authorization by $1 billion. As of Sep 30, 2023, the company had $682.9 million remaining in authorization.
Upbeat Estimates & Growth Metrics
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $11.33 per share. Earnings estimates for 2024 have increased by 3 cents in the past 30 days. Revenues are also expected to be $16.76 billion for 2024, up 3.2% year over year.
The company is likely to beat these projections in the upcoming quarters, which is substantial from its Zacks Rank #2 (Buy) and positive earnings ESP.
The company has surpassed earnings estimates in the trailing four quarters with an average of 21%. This can further be validated by its VGM Score of B. These positive trends indicate bullish analysts’ sentiments, robust fundamentals and further expectations of outperformance in the near term.
A Look at Other Homebuilders’ Expectations
Based in Texas, D.R. Horton enjoys one of the broadest geographic diversities in the industry and is not dependent on any particular market. With 82,917 homes closed during the 12 months ended Sep 30, 2023, D.R. Horton has positioned itself as one of the largest homebuilders in the United States.
D.R. Horton currently carries a Zacks Rank #3 (Hold). DHI has seen an upward estimate revision for fiscal 2024 EPS to $14.17 from $14.14 over the past seven days. Its earnings topped consensus estimates in all the trailing four quarters, with the average surprise being 28.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Based in Miami, FL, Lennar is engaged in homebuilding and financial services in the United States. The company is reaping the rewards of its digital marketing efforts and a flexible pricing approach. Additionally, its strategy of minimizing land holdings and implementing efficient cost-saving methods has been advantageous.
LEN is also a Zacks Rank #3 stock. Earnings estimates for fiscal 2024 of $15.91 per share imply 10.7% year-over-year growth. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 21.7%.
NVR is engaged in the construction and sale of single-family detached homes, townhomes and condominium buildings, all of which are primarily constructed on a pre-sold basis. Unlike other homebuilders, NVR’s sole business is selling and building quality homes by typically acquiring finished building lots without the risk of owning and developing land in a cyclical industry.
NVR has a Zacks Rank #3 as well. Earnings estimates for 2024 have increased to $415.39 per share from $412.00 over the past seven days. The company’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 14.6%.
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