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Factors Shaping the Fate of PulteGroup's (PHM) Q3 Earnings

PulteGroup Inc. PHM is slated to report third-quarter 2020 results on Oct 22, before the opening bell.

In the last reported quarter, the company’s earnings and revenues handily surpassed the Zacks Consensus Estimate by 36.9% and 2%, respectively. On a year-over-year basis, earnings and revenues grew 33.7% and 4.2%, respectively, buoyed by a recovery in demand.

Notably, the company surpassed earnings estimates in each of the trailing 15 quarters.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has been unchanged at $1.11 per share over the past 30 days. The said figure indicates a 9.9% increase from the year-ago earnings of $1.01 per share. Also, the consensus mark for revenues is $2.73 billion, suggesting 0.8% year-over-year growth.

PulteGroup, Inc. Price and EPS Surprise

PulteGroup, Inc. price-eps-surprise | PulteGroup, Inc. Quote

Factors at Play

PulteGroup’s third-quarter Homebuilding revenues (accounting for 98% of total revenues) are expected to have witnessed growth, given robust U.S. housing market fundamentals.

Resilient housing market conditions are evident from improved monthly U.S. home sales data. Markedly, pending home sales maintained its growth trend in August, marking the fourth uninterrupted month of positive contract activity, according to the National Association of Realtors. Also, existing home sales hit the highest level in August since December 2006. It also marked the third consecutive month of sales gain. Furthermore, new single-family homes were recorded in levels not seen since before the Great Recession. There were 1.01 million newly-built homes sold in August, according to the Census Bureau’s monthly report. Notably, the metric has been rising for four consecutive months.

Also, increased demand for affordable housing is likely to have given a boost to its order growth to some extent. PulteGroup has been focusing on growing demand for entry-level homes, addressing the need for lower-priced homes, given affordability concerns prevailing in the U.S. housing market.

Overall, the Zacks Consensus Estimate for Homebuilding revenues of $2.58 billion suggests a 3.2% sequential increase. However, the figure implies a 2.5% year-over-year decline. Also, the consensus mark for ASP is $429,000, which points to a 0.9% year-over-year improvement and 3.1% sequential growth. The company expects ASP between $425,000 and $435,000. ASP of $426,000 was registered a year ago.

It expects deliveries within 6,000-6,300 homes. At the midpoint, the guided range indicates a decrease from 6,186 in the year-ago period. For the quarter to be reported, the consensus mark for the number of homes closed is 6,247, which points to 1% year-over-year and 5.2% sequential growth.

SG&A expense for quarter is expected to be 9.9-10.4% of home sale revenues. In the year-ago period, SG&A expenses were 10.3%.

Homebuilding gross margin for the quarter is guided in the range of 23.9-24.2% (indicating an increase from 23.4% in the year-ago period). It expects gross margins to remain strong through the back half of 2020.

Other Projections

The Zacks Consensus Estimate for third-quarter 2020 new home orders is pegged at 7,216 units, pointing to 19.6% year-over-year and 10.6% sequential growth. The same for backlog is 14,183 units, implying 21.9% growth from the prior-year period and 7.3% increase from the last reported quarter.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for PulteGroup in the quarter to be reported. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the changes of an earnings beat. That’s exactly the case here.

Earnings ESP: The company has an Earnings ESP of +5.99%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, PulteGroup carries a Zacks Rank #1.

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

Stocks to Consider

Here are some other companies in the Zacks Building Products - Home Builders industry, which according to our model also have the right combination of elements to post an earnings beat in their respective quarters to be reported.

D.R. Horton, Inc. DHI has an Earnings ESP of +9.40% and a Zacks Rank #2.

Century Communities, Inc. CCS has an Earnings ESP of +7.53% and holds a Zacks Rank #1.

NVR, Inc. NVR has an Earnings ESP of +6.79% and a Zacks Rank #2.

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