BTIG has adjusted its outlook on PulteGroup (NYSE: NYSE:PHM), a notable player in the home construction sector, by increasing the price target to $156 from $139 while reaffirming a Buy rating on the stock.
The revision follows PulteGroup's third-quarter 2024 earnings report, which exceeded expectations.
PulteGroup announced earnings per share (EPS) of $3.35 for the third quarter of 2024, surpassing BTIG's projection of $3.21 and the consensus estimate of $3.11.
The company's performance was buoyed by a combination of better delivery volumes, a slight increase in the average selling price (ASP), stronger financial services income, and a lower tax rate. These factors helped mitigate a marginal dip in operating margin compared to forecasts.
Despite the positive quarter, PulteGroup's shares experienced a 7% decline, which BTIG attributes in part to cautious remarks regarding October incentives and a fourth-quarter gross margin (GM) guidance that fell short of expectations. The anticipated GM was 110 basis points below BTIG's previous forecast for the fourth quarter, influenced by expected continued incentive pressure and a shift in sales mix away from the higher-margin Del Webb communities.
In light of the recent earnings beat and positive outlook, BTIG has raised its EPS estimates for PulteGroup. The forecast for 2024 has been increased to $13.79 from $13.60, and the projection for 2025 has been adjusted to $14.50 from $14.00. The firm expects PulteGroup to maintain a return on equity (ROE) in the mid-20s, despite the company's low leverage.
In other recent news, PulteGroup reported a notable increase in earnings per share (EPS) and home closings in the third quarter of 2024 during its latest earnings call. EPS rose by 16% to $3.35, with home closings also increasing by 12%. Despite facing challenges such as recent hurricanes, the company managed to return $1 billion to its shareholders and is optimistic about meeting its full-year home closing target.
The company's average sales price remained stable at $548,000, with a rise expected in the fourth quarter. PulteGroup also reported a backlog of 12,089 homes valued at $7.7 billion at the end of the third quarter. PulteGroup's financial services segment saw a 90% increase in pre-tax income to $55 million.
In terms of future expectations, PulteGroup anticipates closing between 7,900 and 8,300 homes in the fourth quarter with a full-year closing target of approximately 31,000 homes. The company also plans to operate 950 communities in the fourth quarter.
InvestingPro Insights
PulteGroup's recent performance and BTIG's optimistic outlook are further supported by real-time data from InvestingPro. The company's P/E ratio of 10.64 and adjusted P/E ratio of 9.56 for the last twelve months as of Q3 2024 suggest that the stock may be undervalued relative to its earnings potential. This aligns with an InvestingPro Tip indicating that PulteGroup is "trading at a low P/E ratio relative to near-term earnings growth."
The company's financial health appears robust, with an operating income margin of 21.37% for the last twelve months as of Q3 2024. This strong profitability is complemented by another InvestingPro Tip highlighting that PulteGroup "operates with a moderate level of debt," which could provide financial flexibility in a changing market environment.
Investors may also find comfort in PulteGroup's dividend history. An InvestingPro Tip notes that the company "has raised its dividend for 6 consecutive years," demonstrating a commitment to shareholder returns. This is particularly noteworthy given the cyclical nature of the homebuilding industry.
For those interested in a more comprehensive analysis, InvestingPro offers 12 additional tips on PulteGroup, providing a deeper understanding of the company's financial position and market performance.
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