PulteGroup (PHM, Financial) recently announced first quarter of 2015 net revenue of $1.13 billion compared to $1.12 billion reported during the same period last year. Looking ahead, the positive momentum will continue, as PulteGroup currently estimates the housing market recovery to be consistent and in line with its earlier expectations.
Factors that will drive growth
Millennials and Boomers are emerging strongly with a solid demand recovery, owing to healthy demographics adding to the demand bounce back. Millennials are estimated to force their demand in the latter half of 2015, but their wish to buy a home is extremely well registered with robust Centex performance.
The ongoing housing market recovery is forecast to bring in new customer groups interested in purchasing a house, coupled with a rising traction from the existing customers already owning a house, and, thus significantly benefiting the top-line growth for PulteGroup.
The dynamic adults segment comprising of the youngest boomers currently crossing 50 are believed to be a major source of prospective growth, and, the company’s Del Webb brand is extremely well-positioned to cater to these key purchasers.
Also, currently there are lower interest rates, and, with the latest reductions in FHA fees, the monthly expense has turned slightly less costly for several prospective homeowners. Still, the credit availability situation in the mortgage market is forecast to remain tight with little chances of improvement in the recent future.
The rapid emergence of first-time home purchasers combined with the key reduction in the interest rates is estimated to boost the homebuyer confidence, allowing them to make significant home purchasing decisions and thus hugely benefiting the home development major.
Improving consumer sentiment is a positive
In addition, there’s a rapid and ongoing improvement in consumer sentiments and the overall job market environment with more than 3 million jobs already created since last year. The continued increase in these key numbers over several months clearly signifies the improvement in the overall economic conditions and an expanding trend of household developments.
Going forward, the significant creation of new jobs is believed to propel greater wage inflation which is again expected to make mortgages affordable for would-be home buyers. The rising housing demand in the U.S. is still in the nascent stages of spring selling season, in accordance with the expectations, and it is expanding consistently, which should significantly enhance the new home sales for the complete fiscal year 2015.
The combined effect of the growing housing market demand, improving economic conditions, and rising wages for the working people is believed to significantly boost the first-time home buyer’s confidence and prove beneficial for the PulteGroup.
PulteGroup delivered robust year-over-year financial and operating performance during 2015. The sign-ups for the first quarter increased 6% to 5,139 homes compared to last year with a 5% growth in community count. Crucially, PulteGroup successfully enhanced its sales while holding superior absorption rates with no significant increase in the promotion incentives for the phase.
During the first quarter, PulteGroup executed a major launch of approximately 60 innovative neighborhoods, and, in line with its earlier guidance to introduce about 200 fresh communities during 2015.
The rapid year-over-year increase in the community count for the PulteGroup highlight the management’s commitment to grow the company’s top line and deliver improved shareholder returns.
Particularly, PulteGroup registered an extremely robust increase in the demand on the East Coast, and, down the coast, with the Southeast and Florida witnessing solid purchaser interest all through the period, in addition to the enhanced demand in the Northeast and mid-Atlantic markets.
Further, there was robust demand from Florida, Georgia and the Carolinas partially due to the people wanting to overcome the winter season. The overall situations in the middle of the country –Â i.e. the Midwest –Â remained generally steady during the quarter, though similar to the East demand enhanced somewhat with the progressing quarter.
The significant increase in around-the-globe demand for the new homes is expected to drive solid top line growth for the PulteGroup, and, thus enhanced investor returns.
Conclusion
Finally, investors are advised to avoid investments in the PulteGroup, Inc., looking at the stock overvaluation with the PEG ratio of huge 4.95 compared to the solid industry’s average of 0.73. Contrastingly, its key competitors like D.R. Horton Inc. (DHI, Financial) and Lennar Corp. (LEN, Financial) have attractive growth rates with PEG ratios of 0.98 and 1.17 respectively. The trailing P/E and forward P/E ratios of 15.98 and 13.24 respectively seems satisfactory compared to the industry’s average P/E of 27.66. The profit margin of 8.15% is weak. Moreover, PulteGroup is hugely debt-burdened with a significant total debt of $2.01 billion against a smaller total cash of $1.30 billion only, restricting the company to plan for future growth investments.
