PulteGroup Inc Valuation – July 2016 $PHM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how PulteGroup Inc (PHM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): PulteGroup, Inc. is a homebuilder operating in the United States. The Company, through Pulte Mortgage LLC, is engaged in mortgage banking operations and title operations. The Company’s subsidiaries are also engaged in the homebuilding business. The Company operates through Homebuilding and Financial Services segments. The Company’s homebuilding business, includes the acquisition and development of land primarily for residential purposes within the United States and the construction of housing on that land. The Company’s brands include Pulte Homes, Del Webb and Centex. The Company, through its brands, offer a range of home designs, including single-family detached, townhouses, condominiums and duplexes. Its Homebuilding Operations segment operates through six geographical segments: Northeast, Southeast, Florida, Midwest, Texas and West. The Company conducts its Financial Services operations, which includes mortgage and title operations, through Pulte Mortgage LLC and other subsidiaries.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of PHM – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $7,048,677,284 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.83 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -122.20% Fail
6. Moderate PEmg Ratio PEmg < 20 9.90 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.50 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.83 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.60 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

PHM value chart July 2016

EPSmg $2.06
MG Growth Estimate 15.00%
MG Value $79.18
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $29.82
MG Value based on 0% Growth $17.48
Market Implied Growth Rate 0.70%
Current Price $20.37
% of Intrinsic Value 25.73%

PulteGroup, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-1.46 in 2012 to an estimated $2.06 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.7% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

PulteGroup, Inc. performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

PHM charts July 2016

Net Current Asset Value (NCAV) $6.14
Graham Number $21.69
PEmg 9.90
Current Ratio 3.83
PB Ratio 1.50
Current Dividend $0.34
Dividend Yield 1.67%
Number of Consecutive Years of Dividend Growth 4


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $7,220,594,000
Total Current Liabilities $1,883,976,000
Long-Term Debt $3,185,977,000
Total Assets $9,843,480,000
Intangible Assets $163,185,000
Total Liabilities $5,069,953,000
Shares Outstanding (Diluted Average) 350,477,000

Earnings Per Share History

Next Fiscal Year Estimate $1.53
Dec2015 $1.36
Dec2014 $1.26
Dec2013 $6.72
Dec2012 $0.54
Dec2011 -$0.55
Dec2010 -$2.90
Dec2009 -$3.94
Dec2008 -$5.81
Dec2007 -$8.94
Dec2006 $2.66
Dec2005 $5.68
Dec2004 $3.79
Dec2003 $2.49
Dec2002 $1.84
Dec2001 $1.50
Dec2000 $1.12
Dec1999 $1.02
Dec1998 $0.58
Dec1997 $0.30
Dec1996 $0.58

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.06
Dec2015 $2.17
Dec2014 $2.05
Dec2013 $1.62
Dec2012 -$1.46
Dec2011 -$3.12
Dec2010 -$4.19
Dec2009 -$3.92
Dec2008 -$2.78
Dec2007 -$0.46
Dec2006 $3.61
Dec2005 $3.75
Dec2004 $2.57
Dec2003 $1.84
Dec2002 $1.41
Dec2001 $1.10
Dec2000 $0.84

Recommended Reading:

Other ModernGraham posts about the company

10 Most Undervalued Companies for the Enterprising Investor – June 2016
10 Low PE Stocks for the Enterprising Investor – June 2016
10 Most Undervalued Companies for the Enterprising Investor – May 2016
10 Low PE Stocks for the Enterprising Investor – May 2016
10 Companies Benjamin Graham Would Invest In Today – March 2016

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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