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Why is PulteGroup (PHM) Trending Better Than Its Industry YTD?

PulteGroup, Inc. PHM has gained 52.4% so far this year compared with the Zacks Building Products - Home Builders industry’s 32% growth, the Zacks Construction sector’s 16.9% rise and the S&P 500 Index’s 12.7% rally.

PHM has been riding on land acquisition strategies and focusing on entry-level buyers. Also, business expansion via community openings in various locations bodes well. The company regularly raises shareholders’ value via repurchases and dividend distributions, boosting investors’ sentiment.

Although a challenging sales environment, higher cancellation rates, supply-chain issues and significant inflation are major concerns, the improving interest rate environment is raising hope. Also, the lack of existing homes for sale, a focus on cost control, more stabilized mortgage rates, increased operating leverage and important buyouts have been boosting  its confidence.


Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research


Let’s delve deeper into the factors influencing this Zacks Rank #1 (Strong Buy) company.

Land Acquisition & Development to Improve Profitability

PulteGroup’s land acquisition strategies aim to improve volumes, revenues and profitability on an annual basis. In first-quarter 2023, it spent $906 million on land acquisition and development. PHM expects the land acquisition and development spend in 2023 to be within $3.5-$4 billion, up from the previously considered value of $3.3 billion. Of these, it estimates 65% will go toward developing owned land positions.

Apart from this, PulteGroup’s land strategy emphasizes investing in shorter-lived, smaller land assets while expanding the use of land option agreements when possible, thereby mitigating market risk.

The company’s first-quarter 2023 results posted a 28% increase in earnings per share (EPS) and a 12-month return on equity of 32%. The solid EPS was driven by a 13.5% increase in revenues, improved gross margins and overhead leverage. The company also witnessed solid gross orders, closings and margins in the quarter.

Cost Control & Focus on First-Time/Entry-Level Buyers

To mitigate the accelerated raw material prices, PHM and its peers have undertaken various cost control measures and focused on making the homebuilding platform more efficient, which in turn is resulting in higher operating leverage. Homebuilders have been controlling construction costs by designing homes efficiently and obtaining construction materials and labor at competitive prices.

PulteGroup remains focused on the growing demand for entry-level homes, which aim at lower-priced homes, given affordability concerns prevailing in the U.S. housing market. First-time buyers increased by 18% to 3,177 homes for first-quarter 2023. It comprised 39% of first-timers, 35% of move-ups and 26% of active adults. The shift from mix to first-time is in line with its strategy of having more than one-third of business in the first-time buyer space.

Community Expansion Strategy to Offset Inflationary Woes

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 Mar 16, it unveiled a new community in Louisville, The Trails at Belmond. On Mar 8, it introduced expansion in the Greenville market with three new construction communities within its Pulte Homes brand.

Driving Shareholder Value

PHM has been paying quarterly dividends for nearly four decades. It has consistently focused on sharing its cash flows with shareholders and maintaining a solid financial position. In December 2022, it announced a quarterly dividend hike of 7% to 16 cents per share. PHM repurchased 2.8 million shares in first-quarter 2023 for $150 million. At the end of first-quarter 2023, PHM declared cash dividends of $36.1 million. As of Mar 31, 2023, the company had $232.9 million remaining in authorization. On Apr 24, 2023, its board of directors increased the share repurchase authorization by $1 billion.

Other Stocks to Consider

Other top-ranked stocks in the same industry are Taylor Morrison Home Corporation TMHC, Beazer Homes USA BZH and M/I Homes MHO.

Scottsdale, AZ-based Taylor Morrison’s ongoing operational enhancements, acquisition synergies and robust pricing power have more than offset the inflationary pressure and delays in some closings. The company’s well-balanced, diverse mix of portfolio and operating strategy is encouraging. The success of its efforts has been driving growth for the company and enhancing its liquidity level, enabling it to take advantage of investment opportunities as the market evolves.

TMHC currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for its 2023 earnings has been upwardly revised to $6.80 per share from $6.46 per share over the past 30 days.

Beazer Homes presently sports a Zacks Rank #1. The company delivered a trailing four-quarter earnings surprise of 25.1%, on average.

In the past 30 days, estimates for Beazer Homes’ fiscal 2023 (ending September 2023) earnings have increased 39 cents.

M/I Homes is one of the nation's leading builders of single-family homes. The company designs, markets, constructs and sells single-family homes and attached townhomes to first-time, move-up, empty-nester and luxury buyers. At present, the stock sports a Zacks Rank #1.

The Zacks Consensus Estimate for M/I Homes’ current-year earnings moved up to $12.40 per share from $11.12 in the past 30 days. MHO surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 30%.

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PulteGroup, Inc. (PHM) : Free Stock Analysis Report

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Taylor Morrison Home Corporation (TMHC) : Free Stock Analysis Report

M/I Homes, Inc. (MHO) : Free Stock Analysis Report

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