PulteGroup's Focus on Operational Improvements Will Lead to Long-Term Growth

PulteGroup (PHM, Financial) cheered the street with its third-quarter results that topped the analyst’s expectations amid a soft housing recovery. It seems to be a paradox that, in spite of a significant drop in earnings, the stock is rallying. However, considering the present macroeconomic factors, Pulte reported some decent numbers. The earnings beat was mainly driven by an improving economy coupled with increasing average selling price . Let’s see in detail how the company performed during the quarter and what are its future prospects.

A strong fundamental position and smart strategies

Pulte has a strong cash position of more than $1 billion, even while its operations continue to grow in a more profitable and efficient manner. Its investments are based to drive higher return on invested capital and to return excess capital to shareholders through a share repurchase program. In this direction, the company announced a share buyback program worth $750 million along with a 60% increase in dividends. These measures reflect its improving fundamentals, but at the same time it is important for the economy to reciprocate in a similar manner.

Pulte, which is one of the largest home builders of the country, is sometimes seen as a benchmark of housing performance. A lot of ground has to be covered yet minor improvement can be seen as its net new orders increased marginally. According to an article in The Wall Street Journal, “Builders have rebounded in recent periods on the strength of apartment construction, while also benefiting from a low existing-home inventory. Housing starts rose 6.3% in September from a month earlier while building permits, a bellwether of future construction, increased 1.5%.” Albeit slow but the market is recovering. It is hard to predict the exact time of a turnaround, but we could expect a rebound in the near future.

These expectations stem from the rising demand in the global market. On the International platform, it reported positive demand from the Midwest even as its position continues to strengthen in Michigan, Indianapolis and Cleveland. Talking about its performance in different markets Pulte Chairman and CEO Richard J Dugas said, “Texas remains one of the strongest areas of the country, but we did see the market starting to ease a little from the torrid pace they have been setting. Out West, Southern California, Las Vegas and Phoenix picked up in the quarter, which is a positive sign. Northern California was little more volatile from month to month.” These are encouraging facts and we could see even better results ahead.

Conclusion

In spite of these positives, the company will have to overcome the headwinds in the housing market. The home builders are in a dilemma at this moment as they are faced with the rising cost of homes, which cannot be entirely transferred to customers. It will be a matter of time to see how things turn out for the economy. Although, its earnings was down year over year yet it topped the street expectations. Interestingly, in spite of a lower earnings growth the stock rallied considerably and seems well positioned for further momentum on the up side.