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Investing.com -- Fitch Ratings has revised PulteGroup (NYSE:PHM), Inc.’s Long-Term Issuer Default Rating (IDR) outlook to Positive from Stable while affirming the IDR at ’BBB+’ on Tuesday.
The rating agency also affirmed the homebuilder’s senior unsecured notes and revolving credit facility at ’BBB+’.
The outlook revision reflects PulteGroup’s successful execution of its land-light strategy, which has resulted in a lower owned-lot position and more consistent cash flow from operations. The company has maintained one of the highest EBITDA margins among homebuilders in Fitch’s coverage while demonstrating low leverage and excellent financial flexibility.
Fitch indicated it may consider upgrading PulteGroup’s IDR to ’A-’ if the company continues to sustain low leverage and further shortens its owned-lot position. Any upgrade would also depend on PulteGroup managing a higher proportion of optioned land while maintaining high margins and disciplined capital allocation.
PulteGroup’s credit metrics remain strong for the current ’BBB+’ rating. The company’s net debt to capitalization was 5.5% at March 31, 2025, and Fitch expects this ratio to remain below 10% during the next few years. EBITDA leverage is forecast at around 0.6x for year-end 2025 and 2026, compared to 0.5x for the twelve months ended March 31, 2025.
As the third largest U.S. homebuilder, PulteGroup delivered approximately 30,700 homes for the twelve months ended March 31, 2025. The company operates in over 45 markets across 24 states with a well-balanced market diversification - about 40% of home closings directed to first-time buyers, 38% to move-up buyers, and 22% to active adult customers.
Fitch expects PulteGroup to generate cash flow from operations of $1.35 billion-$1.45 billion during 2025 and 9%-10% of homebuilding revenues in 2026. The company pays a dividend of $0.22 per share, equating to approximately $170 million-$175 million in annual cash outflow. The rating agency anticipates PulteGroup will continue directing free cash flow toward share repurchases of about $1.2 billion annually while maintaining current debt levels.
Despite industry pressures, PulteGroup’s EBITDA margins remain among the highest for Fitch-rated homebuilders. The agency expects margins to decline 250-300 basis points this year and another 100-150 basis points in 2026, settling between 17.5%-18.5% in 2025 and 16.5%-17.5% in 2026.
The company controlled 244,000 lots as of March 31, 2025, with 41% owned and 59% controlled through options. PulteGroup aims to increase its optioned lots to 70% of total lots controlled. Based on the last twelve months of closings, the company controlled eight years of land and had a 3.3-year owned-lot supply.
Fitch anticipates the housing market will remain constrained through 2025 due to affordability challenges and economic factors. The agency projects PulteGroup’s revenues will fall 5%-6% in 2025 before improving 1.5%-2.5% in 2026.
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