Construction Stocks

PulteGroup Inc Valuation – March 2018 $PHM

Company Profile (excerpt from Reuters): PulteGroup, Inc., incorporated on September 17, 1987, is a homebuilder in the United States. The Company’s segments include Homebuilding and Financial Services. Its Homebuilding operations are engaged in the acquisition and development of land primarily for residential purposes within the United States and the construction of housing on such land. Its Financial Services operations consist principally of mortgage banking and title operations. The Company’s subsidiaries are engaged in the homebuilding business. The Company offers a product line to meet the needs of homebuyers in its focused markets. Through its brands, which include Centex, Pulte Homes, Del Webb, DiVosta Homes, and John Wieland Homes and Neighborhoods, the Company offers a range of home designs, including single-family detached, townhouses, condominiums and duplexes.

PHM Chart

PHM data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PHM – March 2018

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 $8,447,853,610 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.57 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 -181.87% Fail
6. Moderate PEmg Ratio PEmg < 20 15.10 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.08 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 3.57 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.64 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.95
MG Growth Estimate -0.74%
MG Value $13.73
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $28.31
MG Value based on 0% Growth $16.60
Market Implied Growth Rate 3.30%
Current Price $29.49
% of Intrinsic Value 214.85%

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 is only concerned with the lack of earnings growth over the last five years. 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 Overvalued after seeing its EPSmg (normalized earnings) decline from $2.05 in 2014 to an estimated $1.95 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.3% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into PulteGroup, Inc. revealed the company was trading below its Graham Number of $30.53. The company pays a dividend of $0.36 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 15.1, which was below the industry average of 28.57, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $6.55.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $6.55
Graham Number $30.53
PEmg 15.10
Current Ratio 3.57
PB Ratio 2.08
Current Dividend $0.36
Dividend Yield 1.22%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $7,453,298,000
Total Current Liabilities $2,087,852,000
Long-Term Debt $3,444,771,000
Total Assets $9,686,649,000
Intangible Assets $140,992,000
Total Liabilities $5,532,623,000
Shares Outstanding (Diluted Average) 293,314,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.86
Dec2017 $1.44
Dec2016 $1.75
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 $2.48
Dec2002 $1.84
Dec2001 $1.50
Dec2000 $1.12
Dec1999 $1.02
Dec1998 $0.58

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.95
Dec2017 $1.83
Dec2016 $2.13
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 $1.83
Dec2002 $1.41

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

Other ModernGraham posts about related companies

Cummins Inc Valuation – March 2018 $CMI
Johnson Controls International PLC Valuation – March 2018 $JCI
Flowserve Corp Valuation – February 2018 $FLS
Corning Inc Valuation – February 2018 $GLW
Home Depot Inc Valuation – February 2018 $HD
Caterpillar Inc Valuation – February 2018 $CAT
Eagle Materials Inc Valuation – Initial Coverage $EXP
Louisiana-Pacific Corp Valuation – Initial Coverage $LPX
Lowe’s Companies Inc Valuation – March 2017 $LOW
Cavco Industries Inc Valuation – Initial Coverage $CVCO

Disclaimer:

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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top