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PulteGroup, Funko, Healthpeak Properties and UDR highlighted as Zacks Bull and Bear of the Day

For Immediate Release

Chicago, IL – February 11, 2020 – Zacks Equity Research Shares of PulteGroup, Inc. PHM as the Bull of the Day, Funko, Inc. FNKO asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Healthpeak Properties, Inc. PEAK and UDR Inc. UDR.

Here is a synopsis of all four stocks:

Bull of the Day:

PulteGroup, Inc.is able to cash in as the unemployment rate remains near all-time lows and, thanks to the Fed rate cuts, mortgage rates have also fallen. This Zacks Rank #1 (Strong Buy) is expected to see double digit earnings growth in 2020.

PulteGroup is one of America's largest homebuilders with operations in more than 40 markets around the country. Its brands include Centex, Pulte Homes, Del Webb, DiVosta Homes, American West and John Wieland Homes and Neighborhoods.

Its segments include 30% entry-level and first-time buyers, 30% move-up buyers, 15% luxury and 25% active adult.

The diverse strategy means that when one is lagging, the others are there to pick up the slack.

Another Earnings Beat in the Fourth Quarter

On Jan 28, Pulte reported its fourth quarter 2019 results and beat the Zacks Consensus by $0.06. Earnings were $1.14 versus the Zacks Consensus of $1.08.

The company hasn't a great track record of meeting and/or beating the consensus estimate.

It hasn't missed since 2015.

Revenue rose 1% to $2.9 billion as net new orders rose 33% compared to the fourth quarter of 2018 to 5,691 homes.

Average community count for the fourth quarter of 2019 was 865 communities, up from 825 communities in the year ago period.

Unit backlog rose 20% year-over-year to 10,507 homes which a dollar value of $4.5 billion. The dollar value was up just 18% year-over-year as Pulte has been working on expanding its first-time home buyers business. Those homes typically have a lower sales price.

Gross margin, a key metric for home builders, was 22.8%, up from 21.5% a year ago.

Still Seeing Labor Constraints

With unemployment at 3.6%, it's been hard for the homebuilders to find enough labor to meet demand.

Pulte announced it was acquiring Innovative Construction Group, an off-site solutions provider focused on single family and multifamily wood framed construction.

Basically, the frame can be manufactured elsewhere.

It provides full design services, roof trusses and floor systems as well as manufactured wall panels.

2020 and 2021 Earnings Estimates on the Move Higher

Analysts are bullish on Pulte for 2020 and 2021. The Federal Reserve is expected to keep rates low, and possibly even go lower, which means mortgage rates will should remain low.

Consumer confidence is high and the job market remains tight. Additionally, Millennials are marrying and will be in need of housing.

6 estimates were raised for 2020 in the last month, pushing the Zacks consensus estimate up to $4.09 from $3.88. Given that the company made $3.49 in 2019, that's earnings growth of 17.2%.

2 estimates were also revised higher for 2021, pushing the Zacks Consensus up to $4.46 from $4.12. That's another 9.2% earnings growth.

Is it too Hot to Handle?

Shares took off in 2019 as soon as the Fed started cutting rates. They have gained 76% over the last year and are at 5-year highs.

Yet, Pulte is still trading with a forward P/E of just 11.3.

Additionally, it's shareholder friendly with a share repurchase plan and a dividend.

In 2019, the company purchased $274 million, or 3% of its outstanding shares. The dividend is yielding 1%.

Bear of the Day:

Funko, Inc.shocked the Street by warning on fourth quarter sales and issuing weak 2020 guidance. This Zacks Rank #5 (Strong Sell) saw its earnings estimates slashed.

Funko makes pop culture consumer products, including vinyl figures, action toys, plush, apparel, housewares and accessories for consumers who have favorite pop culture brands and characters. This includes movie, television and book characters, and sports figures, including popular coaches.

Warns on the Fourth Quarter

On Feb 5, Funko surprised the Street by announcing preliminary fourth quarter results and 2020 guidance that were both below expectations.

For the fourth quarter, which was the crucial holiday quarter, sales were expected to decline 8% to $214 million from $233 million a year ago.

Sales were below expectations in mature markets, including the US, due to the challenging retail environment as well as softness in sales related to certain tentpole movie releases.

Europe and the Loungefly brand both remained strong in the quarter, but weren't enough to offset the other weakness. Europe grew by double digits in the quarter.

Net sales of figures were down about 10% and net sales of other products fell about 3% year-over-year. However, Loungefly was a bright spot, as it continued to see double-digit growth in the quarter.

2020 Looks Awful

The first look at 2020 was also disappointing.

It expects its 2020 net sales growth rate to be in the high-single-digits to low-double-digits, with the first half of the year slower. The first six months are expected to be  down low-single-digits to flat.

There was no mention of the impacts of the coronavirus on the company in the press release.

It won't report earnings until Mar 5, where it will share more details.

2019 and 2020 Earnings Estimates Cut

Given the dismal news, it's not a surprise that the analysts all moved to cut their 2019 and 2020 estimates.

4 estimates were cut for 2019 since the announcement, pushing the 2019 Zacks Consensus Estimate down to $1.06 from $1.21.

That's still earnings growth of 29.3% as Funko made $0.82 in 2018.

But you can see the slowdown in growth with the 2020 consensus. 5 estimates were cut for 2020 in the last week, pushing the 2020 Zacks Consensus Estimate down to $1.10 from $1.40.

That's earnings growth of just 3.2%.

Shares Hammered on the News

After riding high for 2019, the fourth quarter warning was a shock to investors and analysts. There was no hint of a possible slowdown of this magnitude on the prior earnings call in October.

Shares plunged 44% on the news.

They are now trading with a forward P/E of just 7.8.

But is that cheap enough to dive in with all the unknowns?

Additional content:

REITs to Watch for Q4 Earnings on Feb. 11: PEAK & UDR

The Q4 earnings season is in full swing and the real estate investment trust (REIT) space is buzzing with activity with a deluge of earnings releases lined up on Feb 11. Among others, Healthpeak Properties, Inc. and UDR Inc. will release their quarterly numbers on Tuesday.

Notably, resilient economic activity, a healthy job-market environment and low interest rates are anticipated to have driven REITs’ performance in the quarter to be reported. However, the uptick in supply in certain asset categories might have intensified competition and curbed any robust growth tempo in terms of rent and occupancy growth.

Therefore, with underlying asset categories and the location of properties playing a crucial role in determining REITs’ performance, delving into the asset fundamentals and markets of each REIT becomes all the more important.

Particularly, during fourth-quarter 2019, fundamentals of the U.S seniors housing sector were supported by seasonal uptick in occupancy, decent net absorption and moderating new construction. Usually, demand for senior housing space increases in the fourth quarter relative to the third quarter and is the year’s strongest, mostly. This, along with favorable demand trends, is expected to have aided healthcare REITS’ performance in fourth-quarter 2019.

Moreover, the latest figures from real estate technology and analytics firm RealPage, Inc. (RP) suggest that following a robust prime leasing season in 2019, the U.S. apartment rental market put up a decent show in the December-end quarter, despite demand for apartments generally slowing down during the colder months, as renters usually prefer less to move in winters. Occupancy at the end of fourth-quarter 2019 remained as high as 95.8%, reflecting an expansion of 40 basis points (bps), year on year. In addition, rents for new-resident leases were up 2.8% in 2019, hovering around the 3% level that the apartment market has been witnessing since late 2016.

Nevertheless, store closures and bankruptcies have been affecting the retail real estate market, for quite some time, which has been undergoing structural changes. Also, the recent data from Reis shows that the retail and the Mall vacancy rates both increased during the quarter in discussion. Particularly, the retail vacancy rate inched up 0.1% to 10.2% in the fourth quarter. Further, retail rent growth was just 0.1%, while mall rents remained flat.

Let’s analyze the factors that are expected to have played a key role in the above-mentioned REITs’ fourth-quarter performance.

Healthpeak Propertiesis slated to report quarterly numbers after market close. Our proven model predicts a beat in terms of FFO per share for the company this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Healthpeak Properties currently carries a Zacks Rank of 3 and has an Earnings ESP of +1.15%.

This healthcare REIT has been making strategic efforts to strengthen all three core segments — senior housing, medical office and life science — on acquisitions and portfolio quality-enhancing transactions. It is expected to have benefited from transformation of its senior-housing operating portfolio (SHOP) asset quality. Specifically, to gain from stronger demographics and increasing penetration, the company has added strategic properties and recycled capital on the back of dispositions. This is expected to have helped the company expand the geographic footprint of its SHOP portfolio in high-growth and affluent markets, and enjoy superior gains in RevPOR during the December-end quarter. (Read more: What's in the Offing for Healthpeak's Q4 Earnings?)

In fact, total revenues for the quarter are pegged at $540.8 million, suggesting year-over-year growth of 22.4%. In addition, prior to the fourth-quarter earnings release, the company has been witnessing upward estimate revisions. As such, the Zacks Consensus Estimate of FFO per share for the quarter has been revised 2.3% upward to 44 cents over the past month, reflecting analysts’ bullish sentiments. Additionally, it represents 2.3% year-over-year growth.

Over the trailing four quarters, the company exceeded estimates on three occasions and met in the other, the average positive surprise being 1.75%.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Residential REIT UDR is slated to report fourth-quarter and full-year 2019 results after the closing bell. Favorable demographics, household formation and job-market gains are anticipated to have been key demand drivers for the company’s properties in the quarter. UDR has also been steadily implementing its Next Generation operating platform consisting of SmartHome installations and other infrastructure buildouts. These efforts are anticipated to have driven margin expansions and supported the company’s operational platform during the period under consideration.

However, new supply of apartment properties was elevated in the quarter under review, in a number of the company’s markets. Particularly, new lease rate growth might have been adversely impacted. (Read more: UDR to Report Q4 Earnings: What's in Store for the Stock?)

The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $296.6 million, indicating 12.04% year-over-year growth. The Zacks Consensus Estimate for the quarterly FFO per share of 54 cents calls for year-over year growth of 8%. The company projects FFO as adjusted per share at 53-55 cents.

Although UDR carries a Zacks Rank of 3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Over the preceding four quarters, the company outpaced estimates on two occasions for as many in-line performances, delivering an average positive surprise of 1.01%.

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PulteGroup, Inc. (PHM): Free Stock Analysis Report
 
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