CTAs are almost max long in equities, have very limited room to buy: UBS
On Monday, Raymond (NSE:RYMD) James analyst Buck Horne adjusted the price target on PulteGroup (NYSE: NYSE:PHM) shares, bringing it down to $115 from the previous $135, while maintaining an Outperform rating on the stock. Horne’s reassessment comes in response to the evolving economic landscape that has emerged since early April. PulteGroup has managed to outpace its sector peers year-to-date, with a 6% lead, even amidst broader market fluctuations. According to InvestingPro data, the stock has shown significant momentum recently, delivering a 9.4% return over the past week, though it remains about 32% below its 52-week high of $149.47.
The analyst underscored PulteGroup’s robust performance despite the challenging macro environment, attributing it to the company’s diverse customer base, strategic geographical spread, and disciplined approach to capital allocation. The company’s financial strength is evident in its metrics, with InvestingPro data showing a strong return on equity of 26% and an actual ROIC of 21%. The company maintains a healthy balance sheet with a current ratio of 6.99x and operates with moderate debt levels. Horne anticipates that PulteGroup will continue to excel, projecting a 17% return on invested capital (ROIC), leading sector margins, and an operating cash flow surpassing $1.3 billion for the current year.
Despite the adjustment in estimates, Raymond James still envisions PulteGroup as a standout in the sector, with financials that justify a valuation premium compared to its large-cap counterparts. Currently, PulteGroup trades at roughly a 15% discount on the forward-year price-to-earnings (P/E) ratio for fiscal year 2025, which Horne suggests does not reflect the company’s true market value. This view aligns with InvestingPro’s Fair Value analysis, which indicates the stock is currently undervalued. The company’s P/E ratio of 7.12x appears particularly attractive given its strong fundamentals and consistent dividend growth over the past 7 years.
The analyst also noted the potential impact of recent fluctuations in mortgage rates and consumer confidence on housing prices through the end of the year. Consequently, the firm has set expectations for PulteGroup’s fiscal year 2025 deliveries and margins at the lower end of the company’s revised guidance. Nonetheless, there are signs of enduring buyer interest, as evidenced by sustained customer traffic and engagement, particularly among PulteGroup’s move-up and active-adult segments.
In conclusion, Horne expressed a positive outlook for PulteGroup’s shares, which are currently trading at less than 9 times Raymond James’ revised earnings per share (EPS) projections for fiscal year 2026. This valuation, coupled with the potential for substantial earnings growth should mortgage rates decline, presents a compelling risk/reward scenario for PulteGroup despite the prevailing macroeconomic uncertainty. For deeper insights into PulteGroup’s valuation and performance metrics, investors can access the comprehensive Pro Research Report available on InvestingPro, which includes detailed analysis of the company’s financial health, growth prospects, and market position among 1,400+ top US stocks.
In other recent news, PulteGroup reported its first-quarter financial results for 2025, showing a stronger-than-expected performance. The company posted earnings per share (EPS) of $2.57, surpassing the forecasted $2.47, and generated revenue of $3.89 billion, exceeding expectations by $40 million. Despite a 2% decline in home sales revenue year-over-year, PulteGroup maintained robust gross margins of 27.5% and a strong return on equity of 25.4%. Analysts have reacted to these developments by adjusting their price targets for PulteGroup. UBS reduced its price target from $151 to $141 while maintaining a Buy rating, citing recalibrated EPS estimates for the coming years due to anticipated softer sales volumes. Barclays (LON:BARC) also adjusted its price target from $100 to $98, maintaining an Equalweight rating, and expressed caution over PulteGroup’s strategy of reducing housing starts, which could indicate weaker demand. The company remains focused on high returns over the housing cycle, with plans to deliver between 29,000 and 30,000 homes for the full year. PulteGroup’s diverse customer base, including first-time, move-up, and active adult buyers, continues to support its profitability amidst market challenges.
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