Shares of PulteGroup (PHM) are trading higher after the company reported better than expected earnings this morning.
Homebuilders have been rallying all year on hopes that the housing market would improve after affordability issues caused a slowdown in the back half of 2018. We are seeing more of the same today.
First quarter results were solid, but investor focus remains on the improving housing outlook.
PulteGroup exceeded earnings estimates by a wide margin. Deliveries increased slightly yr/yr to 4,635, which came in just above 4,300-4,600 guidance. The average selling price of homes grew 2% to $421,000. Gross margins of 23.4% came in above 22.0-22.5% guidance due to geographic mix and strategic pricing.
Forward-looking net new orders fell 6%, which was better than the 11% decline reported last quarter. What's more, management was encouraged by improving demand trends. Traffic increased every month and in every community yr/yr.
As a result, builders are continuing to rally today as the new home market is expected to improve and have another solid year.
Adding to the optimism, March new home sales data beat estimates this morning after existing home sales missed estimates yesterday.
Valuations in the builder space remain quite reasonable. PulteGroup trades at 10x EPS estimates and 1.8x book value versus the average mid-cap plus builder trading at 10x EPS and 1.5x book value.