PulteGroup (PHM, Financial) posted strong results in the recently reported fourth quarter. The company has effectively capitalized on its strong operating performance and cash flows by allocating its capital in a disciplined way. PulteGroup is now well positioned to grow its profitability in 2015.
It is counting on the recovering housing market and a robust portfolio of homes. In addition, significant investments and potential high return projects can further drive its growth story in the upcoming quarters.
Strong prospects
PulteGroup is optimistic about its prospects in 2015. It is now focusing on various initiatives to improve its profitability. The reason behind its consistent performance is the strategies it undertook in the past such as its Value Creation strategy 2011. This strategy continued to benefit PulteGroup over the years. The company is still confident of gaining more from this initiative in 2015. Besides this, PulteGroup will be focusing on some key elements such as margins, overhead leverage, inventory returns, return on invested capital and disciplined capital allocation.
Moving on, the soft land transactions might hurt its margins, but PulteGroup has anticipated this before and has planned the counter move for it. If this continues to affect it broadly the company has plans to use its capital to fund the ongoing dividend payment and repurchase shares which will subset the negative effect of soft land transactions without affecting its market share.
The recent demand trends are optimistic and are expected to be consistent as PulteGroup enters fiscal 2015. PulteGroup is seeing the demand getting stronger in 2015. Among its operational markets, the company is expecting Carolina, Florida and Georgia to be among its most potential markets in future.
What can benefit PulteGroup in the growing housing market?
The housing market is on a roller coaster ride. However, where the companies are positive about the recovery in the housing market, some analysts are expecting a slow recovery in the same. On the other hand, due to the growth in the job scenario is U.S, the new home sales are expected to rise. But the Federal Reserve on the other hand can rise the interest and mortgage loans which can hurt homebuilders’ margins. But PulteGroup is still expecting to be profitable on the back of strong land portfolio it has.
It is expecting its strong land portfolio to attract the potential buyers despite high mortgage loans. It can offer better locations to prospective buyers. This is a key aspect, allowing PulteGroup to benefit from the growing availability of credit in the U.S market along with growing economy and improving job scenario.
Conclusion
Looking at the fundamentals, the stock is cheap with a trailing P/E of 16.81 while the forward P/E of 13.40 shows good earnings growth in the near term for PulteGroup. Further it can gain market share with an impressive profit margin of 8.15%. The stock can be a long-term holding as well as its earnings are growing with a CAGR of 7.86% which is more than the industry average of 6.17%. Considering all these facts, investors definitely should pick PulteGroup as it is a good investment option even in the long term.
