Institutional Interest Builds at PulteGroup

03/10/2017 7:00 am EST


Crista Huff

Editor, Cabot Undervalued Stocks Advisor

PulteGroup (PHM) is expected to more than double its peers’ earnings growth rates in 2018. That’s going to bring the company a lot of attention from Wall Street, and presumably, more institutional dollars will flow into the stock, explains Crista Huff, editor of Cabot Undervalued Stocks Advisor.

The company is growing organically, with increasing orders, closings and average sale prices per home. In addition, the company is increasing its sale of homes in California, which bring in higher revenue per home than elsewhere in the U.S.

PHM reported EPS of $1.59 in 2016 (December year-end), meeting analysts’ most recent estimates, which had risen by $0.30 as the year progressed. Estimates for 2017 are increasing, too.

The current 2017 consensus EPS estimate is $2.22, up from $2.07 a mere four weeks ago. That’s year-over-year earnings growth of 39.6%; with 2018 expected to bring another 20.7% growth to $2.68 per share.

The 2017 and 2018 P/Es for PHM are 9.7 and 8.1, below both the long-term industry average P/E, and well-below PHM’s average P/E.

For 2017, 12 analysts have increased their earnings estimates for this home builder, and the stock was recently upgraded by FBR & Co. to ‘Outperform’ and by Bank of America/Merrill, to ‘Buy’.

PHM has repeatedly risen to upside resistance in the $22 to $23 area for four years. Based on its trading pattern in recent weeks, combined with the bullish price charts on other homebuilder stocks, I believe that PHM is finally ready to break past price resistance and begin a sustainable run-up. Strong Buy.

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