JPMorgan Running From PulteGroup After CEO Loss

On April 4, PulteGroup, Inc. PHM announced the resignation of its CEO, Richard Dugas, which would be effective from May 2017.

J.P. Morgan’s Michael Rehaut downgraded the rating on the company from Overweight to Neutral, while lowering the price target from $21.50 to $18.00, following the announcement.

Departure of CEO

“We believe this announcement will lead to a period of uncertainty at the company at least over the next 2-3 quarters as well as potentially result in a possible shift away from its current strategy,” Rehaut mentioned.

PulteGroup stated that the CEO’s decision to retire was in part due to the actions of founder Bill Pulte, his grandson, Jim Grosfeld, and a former CEO and current director of the company, who “demanded an immediate CEO change and a different direction for the company.”

Public Battle Likely

Both the board and Mr. Dugas wished to avoid a contested public battle associated with the company’s future direction, which Rehaut pointed out could possible by protracted and distracting for management.

However, “Mr. Pulte released a letter yesterday citing additional disappointment in the timeframe with which Mr. Dugas would retire, advocating for a more accelerated change in leadership, thereby likely still resulting in the same public battle,” Rehaut added.

Given the likelihood of a public battle, the analyst believes that the subsequent executive search and high level of uncertainty regarding PulteGroup’s strategic direction could persist for the next two to three quarters.