Can Investors Find Shelter in Pulte?

 | Apr 04, 2017 | 1:00 PM EDT
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Shares of homebuilder Pulte (PHM) are up 28% year to date. The stock busted out in February, following a stronger-than-expected fourth-quarter report at the end of January, and hasn't looked back. In fact, in the latest 12-month period, the stock is up 39%. 

Can investors find shelter in shares of Pulte? 

In the fourth quarter, Pulte reported earnings of $0.67 per share, $0.08 better than expected. Revenue rose 20.9% to $2.49 billion. The earnings came from a stronger-than-expected operating margin of 14%. In addition, orders grew 15% to 4,202 homes, way ahead of investors' estimates of just 10%. 

Unit backlog rose 10% to 7,422 homes. Backlog value of $2.9 billion jumped 20%. 

The company closed on 6,197 homes, up 9%. Average selling prices rose 11% and were higher across all buyer groups. The price first-time homebuyers paid rose 20% to an average of $301,000. The move-up category saw prices increase 9% to $464,000 and prices increased 6% in the active adult category. 

Pulte repurchased 31 million shares in 2016 at a cost of $600 million. The board of directors has authorized the company to repurchase an additional $1 billion worth of shares in 2017. Over the past four years, the company has repurchased 19% of the outstanding common shares. 

Management altered the way they account for sales commissions. Historically, the company classified sales commissions within the home sale cost of revenue. As of the fourth quarter, Pulte stuck sales commission in selling, general and administrative expenses (SG&A). The change is more consistent with the way competitors account for sale commissions. 

Pulte reports for the fiscal first quarter on April 25. Analysts are looking for earnings of $0.29 on $1.763 billion in revenue. 

For the current year, analysts think the company can earn $2.23 per share on $8.89 billion in revenue. Historically, Pulte trades between 10x and 11x forward estimates, which means, at the current price, the stock is in the middle of the range. While there may be upside to $25 per share as bullish investors look forward to next year, I don't think there's enough upside to take shelter in shares of Pulte.

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