Homebuilder PulteGroup (PHM) Receives Multiple Upgrades Following Strong Q3 Results
Analysts at RBC and Susquehanna upgraded PulteGroup (NYSE: PHM) after the company reported better-than-expected 3Q earnings.
PulteGroup reported adjusted EPS of $1.34, easily beating the Street’s consensus of $1.11. Revenue was reported at $2.95 billion, beating both the consensus and the year-ago number of $2.71 billion.
The company’s CEO Ryan Marshall credited strong results to the “dramatic rebound in housing demand that began in May.”
Following the results presentation, RBC’s analyst Mike Dahl upgraded the stock to “Outperform” from “Sector Perform”. Given that PHM trades nearly 15% lower since last week, Dahl believes that the current market price ($42.64) offers an attractive opportunity.
“PHM remains well positioned on land, margins, and mix to deliver a fourth straight year of >20% ROTE in ’21 (we est. +250 bps to 23.3%), which should command a higher premium. The restart of the buyback in 4Q also provides support.” Dahl wrote in today’s note to clients.
The analyst also raised FY’20/’21 EPS estimates by 1% and 2% respectively and also increasing the stock price target to $53.00 from $52.00.
Similarly, Susquehanna’s Jack Micenko upgraded PHM from “Neutral” to “Positive” and hiked the price objective to $54.00 from the prior target of $53.00.
“Builder stocks underperformed this week as a combination of record to-be-built homes (backlog) sales, higher material costs, and potential labor bottlenecks have all converged to raise the specter of future gross margin compression. We'll take the other side of that however, as it's just math for PHM - even after fading gross margin Y/Y, assuming modest expense de-leveraging next year despite higher deliveries, and slowing backlog conversion in our model, we still see a 11% increase in our 2021 estimates.”
“We also think there is upside bias to our estimate (more cowbell?) - the $2 bln cash position should support both community count growth and buybacks in '21 and '22, while recent pricing initiatives aimed at metering sales pace should ultimately address market concerns,” Micenko said in today’s note to clients.