Morning Trade for April 30th 2021

Stocks slipped in early trading amid a deluge of earnings activity to start the final trading session of the week.  The three benchmarks were down this morning, struggling to hold onto weekly gains.  So far this week, the S&P 500 is up 0.75%, the Dow is up less than 0.1% and the Nasdaq Composite is up 0.47%. 

Home builders are in an enviable position right now.  Millions of millennials are entering their prime home-buying years — they’re getting married and having kids — as mortgage rates remain near all-time lows.  That’s a recipe for strong demand.  Yet a decade of under-building and hesitance on the part of would-be home sellers mean there are very few existing homes listed for sale.  As a result, buyers are being pushed into the market for newly-constructed homes.

A few companies within the homebuilding segment are poised to benefit more than others in the group.  Today’s trade alert highlights one such company.   

PulteGroup, Inc. (PHM) is a Georgia-based construction firm.  The company primarily takes up home building ventures by acquiring and developing land for residential purposes.  The firm makes several different types of houses, including single-family, townhouses, condominiums, and duplexes.  The firm also arranges financing for home seekers, and presently controls more than 180,000 lots across the US. 

PulteGroup was named among the stocks to watch by real estate brokerage Redfin on March 28 amid a boom in competition for home ownership.  Redfin detailed that low mortgage rates and a moving trend had been encouraged by remote working and led to an increase in the demand for houses. 

Higher demand on the back of lower mortgage rates helped PulteGroup to post better than expected Q1 earnings.  On Tuesday, the company reported first-quarter 2021 results, which were buoyed by solid housing market momentum.  Adjusted earnings per share came in at $1.28, beating the consensus mark of $1.19 by 7.6%. The bottom line also grew from 80 cents per share a year ago.  Total revenues of $2.72 billion missed the consensus mark by 3.6% but increased 18.9% from the year-ago figure of $2.29 billion.

 Ryan Marshall, president and chief executive officer of PulteGroup, highlighted, “The year has gotten off to an outstanding start with strong demand across all of our markets and buyer groups which helped drive a 31% increase in net new orders, including a 49% gain in active-adult sales.” 

Year to date, the stock is up more than 41% and the majority of analysts covering the stock think there is more room to run.   Of 14 analysts offering recommendations for PHM, 9 rate the stock a Buy, 4 rate it Hold and only one analyst has a Sell rating for the stock.  The average price target for PHM shares is $69.85, which implies a 16% gain from its current price.  

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