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.
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
Other ModernGraham posts about related companies
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