PulteGroup (PHM) started in 1950 when 18-year-old William “Bill” Pulte built a five-room bungalow near Detroit, notes Ingrid Hendershot, value oriented money manager and editor of Hendershot Investments.
In constructing his first home — Bill set the cornerstone on what would grow into one of the largest and most successful homebuilding companies in the country. Today, PulteGroup is the nation’s third largest builder.
Pulte has delivered nearly 775,000 homes in the past 70+ years and serves homeowners as they move through all stages of their lives. Much has changed since Bill Pulte first picked up a hammer, but not the company’s commitment to delivering a superior quality home and customer experience.
PulteGroup generated healthy growth during the past five years with revenues, net income, EPS and dividends compounding at double-digit rates. Over the past five years, Pulte’s ROE has averaged a profitable 20%, rising to 26% in 2021.
In 2021, Pulte generated $1 billion in cash flow from operations, bringing the five-year total to $6 billion. In 2021, Pulte invested $4.2 billion in land acquisition and development with plans to invest $4.5-$5.0 billion in 2022. In addition, the company raised
Its dividend payout per share rose by 17% in 2021 and an additional 7% in 2022. Pulte returned over $1 billion to shareholders in 2021, including $897 million in share repurchases. In the first quarter, Pulte repurchased an additional $500 million of its stock, or 4% of outstanding shares, at an average price of $48.59 per share.
Housing demand has been strong across all markets and buyer groups the company serves due to a powerful demographic wave of more than 70 million millennials and increased interest in single-family living amid the pandemic. The home supply shortage has built up over 10 years and will need to sustain record new home starts for the next decade to bring the industry out of its current underbuilt situation.
The company’s backlog increased 31% to 19,935 homes valued at $11.5 billion. Pulte maintains one of the strongest balance sheets in the homebuilding industry. As of 3/31/22, the company had $1.1 billion in cash and equivalents, $2.4 billion in long-term debt and $7.4 billion in shareholders’ equity.
The Federal Reserve has been very clear in signaling that interest rates will rise as it seeks to control inflation. This has resulted in rising mortgage rates, which have pulled back homebuilder stock prices, resulting in very attractive valuations. Pulte is trading at about 1.4 times book value and just five times earnings with a dividend yield of 1.4%.
Pulte is in a much better financial position to manage rising rates compared to a decade ago given the housing supply/demand imbalance and its focus on owning less land, maintaining prudent debt levels, and generating strong cash flows.
Long-term investors should consider building a foundation in PulteGroup, a high-quality market leader with an attractive valuation, robust cash flows, a sturdy balance sheet and strong financial results.
