PulteGroup's 'Excellent' Q1 Beat Turns Buckingham Bullish

Homebuilder PulteGroup, Inc. PHM reported first-quarter results Tuesday that prompted Buckingham to turn bullish on the stock.

The Analyst

The Buckingham Research Group's Mark Weintraub upgraded PulteGroup's stock rating from Neutral to Buy with a price target lifted from $38 to $40.

The Thesis

PulteGroup's "excellent" Q1 report had multiple highlights, Weintraub said in a Wednesday note:

• A solid EPS beat.
• A 12-percent increase in new orders from a year ago.
• An 18-percent increase in new orders on a value basis.
• Management lifting its delivery and ASP guidance by 2.2 percent and 1.2 percent, respectively,
• SG&A margins that were guided 20 basis points higher than prior estimates.

The housing market is likely to experience continued "gradual improvement," the analyst said. Even with the assumption of some potential erosion in PulteGroup's margins, its earnings per share can gain at least another 10 percent, Weintraub said. 

PulteGroup's stock is trading at the same level it was at in November 2017, Weintraub said. This may not be justified given the ongoing momentum in housing, company-specific benefits from "significantly" lower tax rates and ongoing operational improvement initiatives, the analyst said. 

PulteGroup's cash from operations is expected to approach $3 per share in 2018 and possibly $4 per share next year, Weintraub said: "PHM has a lot of levers to pull including share repurchase, which it has been using to highly accretive effect." 

Price Action

Shares of PulteGroup were trading higher by 2.9 percent at $30.51 at the time of publication Wednesday. 

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Photo courtesy of PulteGroup.