PulteGroup Wins and Wins More on Interest Rate Cuts
Homebuilder PulteGroup Inc. (NYSE: PHM) shares are trading up 13% year-to-date despite a soft housing market. High interest rates have led to a weak existing home sales market, where owners refuse to sell their homes only to get trapped with higher mortgage rates on their next home. 7% mortgage rates are turning buyers into renters, as evident in the March 2024 existing home sales report, revealing existing home sales declined 4.3% to 4.19 million.
New Home Sales Continue to Thrive
While real estate brokers and portals like Zillow Group Inc. (NASDAQ: ZG), Redfin Co. (NASDAQ: RDFN) and Compass Inc. (NYSE: COMP) are trading down double digits YTD, construction sector giant PulteGroup is thriving. Recently released strong new home sales market data from the U.S. Department of Housing and Urban Development showed an 8.8% jump in new home sales to 693,000. Even in a high-interest rate environment, this robust strength indicates that interest rate cuts should further accelerate new home sales.
Spring Home Buying Season
Homebuying is heaviest in the spring and summer months, March through July. Homebuilders continue to thrive, adding inventory to an already tight supply market of single-family homes. In the past year, PulteGroup shares have soared 75%, Toll Brothers Inc (NYSE: TOL) shares have climbed 93%, and Hovnanian Enterprises Inc. (NYSE: HOV) shares rose 111%.
Daily Ascending Triangle
PHM formed a daily ascending triangle pattern. The ascending trendline formed on the $104.60 swing low on April 19, 2024, rising towards the flat-top upper trendline resistance at $121.08. The resistance is becoming a double top as its second attempt to breakout resulted in a shooting star candle. The daily relative strength index (RSI) rose to the 60-band. Pullback support levels are at $112.76, $109.42, $104.60 and $100.24.
Robust Business
PulteGroup reported Q1 2024 EPS of $3.10, beating consensus analyst estimates handily by 74 cents and rising by 32% YoY. Revenues climbed 10.4% YoY to $3.95 billion, beating $3.58 billion consensus estimates. Closings increased 11% YoY to 7.095 homes. Home sales gross margins increased by 50 bps to 29.6%. Net new orders rose 14% to 8,379 homes. The unit backlog was 13,430 homes valued at $8.2 billion. PulteGroup closed the quarter with $1.8 billion in cash. PulteGroup repurchased 2.3 million common shares at an average price of $106.73 for $246 million.
PulteGroup CEO Ryan Marshall commented, “After more than a decade of underbuilding, it is estimated that our country has a structural shortage of several million homes. Given PulteGroup's broad operating platform and deep product portfolio, along with the powerful incentive programs we can offer to help improve the overall affordability equation, we are well positioned to expand our market share while helping to provide much-needed new housing stock."
Making All the Right Moves
CEO Marshall noted that their decision not to cut prices to chase volume in Q4 2023 was the right move. The company sensed demand firming up as interest rates began to moderate. This enabled PulteGroup to end the 2024 spring homebuying season with more inventory, which meant more homes sold in Q1 2024 at higher margins as closings and gross margins came in above their guidance.
Marshall also pointed out that strong demand can result in higher prices or more homes sold. PulteGroup accomplished both in the quarter. The Q4 2023 areas of strong demand continued to flourish in Q1 2024, including California, Nevada and Arizona. All markets displayed stable or improving pricing dynamics.
PulteGroup analyst ratings and price targets are on MarketBeat.
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