• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Real Estate

Insiders Are Moving Into PulteGroup

But the homebuilder stock doesn't seem to offer many advantages to its peers.
By MEENA KRISHNAMSETTY Jul 31, 2013 | 05:00 PM EDT
Stocks quotes in this article: PHM, DHI, LEN

Two insiders at $6.3 billion market cap homebuilder PulteGroup (PHM have recently bought stock in the company for around $16.50 per share. After rising sharply in 2012 on reports of a stronger housing market, many homebuilders have cooled this year and PulteGroup is no exception. The stock has suffered a 12% correction, year-to-date, against a rising market (the stock is still up about 150% since the beginning of last year). The stock dropped about 10% in late July after missing earnings for the second quarter of 2013.

Specifically, adjusted earnings per share of $0.26 were a bit below consensus of $0.30. Pretax income actually came close to doubling compared to the second quarter of 2012 -- after we add back noncore income and expenses (off of 20% revenue growth) -- but analysts had been expecting an even stronger performance from the company. PulteGroup generated about $340 million in cash from its operations during the first half of 2013, and with the company making very few capital expenditures relative to that figure, management was able to use this cash to partially pay down PulteGroup's senior notes and other debt.

At its current valuation, PulteGroup trades at 22x its trailing earnings. This figure shows that the markets expect the housing market to continue to offer high prices in the near term, allowing for homebuilders to continue their high growth. Despite having overestimated the company's adjusted earnings for last quarter, Wall Street analysts remain bullish on the name: Their forecasts for 2014 imply a forward P/E of only 12. Over the next several years, the five-year PEG ratio is only 0.4, so it is clear that in the eyes of the sell-side PulteGroup (as well as the homebuilding industry in general) has high upside potential.

Investors, however, would probably want to avoid placing too much confidence in analysts -- particularly following the company's recent miss. A trailing P/E of 22 is not particularly high, but PulteGroup would still be dependent on high housing demand in order to justify the current valuation.

We would note that the tight connection between the housing market (and, therefore, demand for PulteGroup's homes) and the overall economy results in a beta of 2.2. One implication of this is that high earnings growth would likely only continue until the next recessionary phase in the current business cycle.

Two similarly sized homebuilders are D.R. Horton (DHI) and Lennar (LEN). These two stocks are valued at similar levels to PulteGroup on a forward earnings basis, with P/E multiples in the 12-13 range, though of course this is due to analysts expecting these companies to experience high growth on their bottom lines as well. D.R. Horton saw its pretax profits more than double in the second quarter vs. a year earlier, with impressive revenue growth as well. Lennar did even better in percentage terms, with pretax income more than tripling in its most recent quarter compared to the same period in the previous fiscal year. It should be noted that these two stocks are somewhat popular short targets: 16% of D.R. Horton's float is held short as of the most recent data, and the corresponding figure for Lennar is 21%.

It's possible to read these insider purchases as a reaction to PulteGroup's recent decline specifically, as these insiders believe that the company remains on track to hit analyst targets for the next couple of years. This would position the stock as a potential "growth at a reasonable price" pick.

Of course, in order for the company to do that well, the homebuilding industry as a whole would have to prosper. At least in forward earnings terms, the stock doesn't seem to offer many advantages to its peers. Homebuilders do appear risky, but for investors whose portfolios aren't already overexposed to macro conditions, they might be worth investigating.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, the author had no positions the stocks mentioned.

TAGS: Investing | U.S. Equity | Basic Materials | Real Estate

More from Real Estate

Zillow Enters Greater Fool Territory

Ed Ponsi
Feb 11, 2021 10:45 AM EST

I can name this tune in three notes, and if you were a homeowner or real estate investor 15 years ago, you probably can as well.

Migration Trends the Pandemic Triggered Won't End Soon

Bret Jensen
Feb 3, 2021 8:42 AM EST

The exodus of residents from big cities and the reduced demand for office space are unlikely to reverse for some time.

Debt-Laden Chinese Electric Car Company Shares Soar

Alex Frew McMillan
Jan 25, 2021 7:00 AM EST

Property developer China Evergrande has seen shares in its electric car unit skyrocket before it enters commercial production.

Jim Cramer: You Just Won Powerball, Now What?

Jim Cramer
Jan 21, 2021 2:24 PM EST

Remember, you only need to get rich once.

Here Are 2 Stocks Doing the Unexpected

Jonathan Heller
Jan 8, 2021 10:30 AM EST

Reading International has surprised while Crimson Wind Group has been a disappointment.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:50 AM EST PAUL PRICE

    Michaels: Close to a Deal?

    It appears that a deal could be announced soon. ...
  • 08:34 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 3/3/2021

    SPX (Long-Term View) The 20 DMA @ 3889 with the ...
  • 06:05 PM EST PAUL PRICE

    Michael's (MIK) Up on Takeover Rumors

    The NYT says talks are underway regarding a buyout...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login