PulteGroup Investors Getting Growth Without The Growing Pains

The brokerage thinks the main debate is whether the company can record volume growth even as the land supply/investment drops without any big disturbance to gross margins. The lead analyst believes PulteHome could gain volume from underlying community count rather than sacrifice price for volumes, which means loss of margins.

Related Link: Lighter Inventory At Harley-Davidson May Make For A "Smoother Ride" For Sales

In a research note, Deutsche Bank explained, "We think there will be an acceleration in community growth fed by the surge in land investment spend over the past several years. Given Pulte's typical projects take roughly two to three years to come to market, we believe there should be an inflection in organic community count growth in the coming quarters."

The brokerage pointed out that if the company achieves its growth through community count, it implied a minimum level land supply. In the recent past, the company's fresh project dropped significantly to 125 on average. The analyst feel that several investors have not taken into consideration the shift in land supply composition.

While predicting gross margin to fall 120 basis points next year, the analysts believe skeptic investors' estimate of 2–3 percentage drops is an exaggerated one.

Therefore, the brokerage reiterated its Buy rating and target price of $27, implying about 35 percent upside potentials.

Full ratings data available on Benzinga Pro.