PulteGroup Inc Valuation – January 2019 $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.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PHM – January 2019

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 $7,392,261,434 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.77 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 -187.42% Fail
6. Moderate PEmg Ratio PEmg < 20 12.60 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.58 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 4.77 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.50 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

EPSmg $2.09
MG Growth Estimate 0.26%
MG Value $18.86
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $30.30
MG Value based on 0% Growth $17.76
Market Implied Growth Rate 2.05%
Current Price $26.32
% of Intrinsic Value 139.57%

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 Overvalued after growing its EPSmg (normalized earnings) from $2.05 in 2014 to an estimated $2.09 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.05% 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 $32.65. The company pays a dividend of $0.36 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 12.6, which was below the industry average of 18.63, 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 $10.27.

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

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $10.27
Graham Number $32.65
PEmg 12.60
Current Ratio 4.77
PB Ratio 1.58
Current Dividend $0.36
Dividend Yield 1.37%
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 9/1/2018
Total Current Assets $8,248,466,000
Total Current Liabilities $1,727,675,000
Long-Term Debt $3,256,151,000
Total Assets $10,055,080,000
Intangible Assets $130,642,000
Total Liabilities $5,326,202,000
Shares Outstanding (Diluted Average) 284,672,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.27
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 $2.09
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

PulteGroup Inc Valuation – March 2018 $PHM
10 Undervalued Stocks for the Enterprising Investor – July 2017
10 Low PE Stock Picks for the Enterprising Investor – April 2017
10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017
10 Low PE Stock Picks for the Enterprising Investor – March 2017

Other ModernGraham posts about related companies

Sherwin-Williams Co Valuation – January 2019 $SHW
Johnson Controls International PC Valuation – January 2019 $JCI
Cummins Inc Valuation – January 2019 $CMI
Flowserve Corp Valuation – January 2019 $FLS
Home Depot Inc Valuation – November 2018 $HD
Cavco Industries Inc Valuation – September 2018 $CVCO
LGI Homes Inc Valuation – September 2018 $LGIH
Stantec Inc Valuation – August 2018 $TSE-STN
Simpson Manufacturing Co Inc Valuation – August 2018 $SSD
KBR Inc Valuation – August 2018 $KBR

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.

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.

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.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

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

[/not-level-free]

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 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

Other ModernGraham posts about related companies

Sherwin-Williams Co Valuation – July 2016 $SHW
Cummins Inc Valuation – July 2016 $CMI
Corning Inc Valuation – May 2016 $GLW
Flowserve Corporation Valuation – May 2016 $FLS
Lennar Corporation Valuation – May 2016 $LEN
Quanta Services Inc Valuation – February 2016 $PWR
Martin Marietta Materials Inc Valuation – February 2016 Update $MLM
Fluor Corp Valuation – February 2016 Update $FLR
Jacobs Engineering Group Inc Valuation – January 2016 Update $JEC
D.R. Horton Inc Valuation – January 2016 Update $DHI

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.

PulteGroup Inc Valuation – January 2016 Update $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 Most Undervalued Companies for the Defensive Investor – November 2015.  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. (PulteGroup) is a homebuilder operating in the United States. The Company’s subsidiaries engage in the homebuilding business. The Company also offers mortgage banking operations through Pulte Mortgage LLC (Pulte Mortgage) and title operations. It offers a variety of home designs, including single-family detached, townhouses, condominiums and duplexes. It has delivered approximately 640,000 homes. It operates in approximately 49 markets located throughout 26 states. The Company operates through its Homebuilding and Financial Services segments. The Company’s Homebuilding Operations include the acquisition and development of land for residential purposes within the United States and the construction of housing on such land. The Financial Services operations consist of mortgage banking and title operations.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of PHM – January 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 $6,036,402,279 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.94 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 -175.60% Fail
6. Moderate PEmg Ratio PEmg < 20 8.09 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.31 Pass
Score
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 2.94 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.55 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
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 January 2016

EPSmg $2.10
MG Growth Estimate 15.00%
MG Value $80.93
Opinion Undervalued
MG Value based on 3% Growth $30.48
MG Value based on 0% Growth $17.87
Market Implied Growth Rate -0.21%
Current Price $17.00
% of Intrinsic Value 21.01%

PulteGroup Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years along with the inconsistent dividend history.  The Enterprising Investor is only concerned by the insufficient earnings stability over the last five years. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $3.12 in 2011 to an estimated gain of $2.10 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.21% annual earnings loss 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.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on PulteGroup Inc (PHM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

PHM Charts January 2016

Net Current Asset Value (NCAV) $5.01
Graham Number $18.48
PEmg 8.09
Current Ratio 2.94
PB Ratio 1.31
Dividend Yield 1.88%
Number of Consecutive Years of Dividend Growth 3

 

[/not-level-free]

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 Sep15
Total Current Assets $6,001,027,000
Total Current Liabilities $2,038,361,000
Long-Term Debt $2,191,612,000
Total Assets $8,801,578,000
Intangible Assets $113,440,000
Total Liabilities $4,229,973,000
Shares Outstanding (Diluted Average) 353,372,000

Earnings Per Share History

Next Fiscal Year Estimate $1.16
Dec14 $1.26
Dec13 $6.72
Dec12 $0.54
Dec11 -$0.55
Dec10 -$2.90
Dec09 -$3.94
Dec08 -$5.81
Dec07 -$8.94
Dec06 $2.66
Dec05 $5.68
Dec04 $3.79
Dec03 $2.48
Dec02 $1.84
Dec01 $1.50
Dec00 $1.12
Dec99 $1.02
Dec98 $0.58
Dec97 $0.30
Dec96 $0.90
Dec95 $0.27

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.10
Dec14 $2.05
Dec13 $1.62
Dec12 -$1.46
Dec11 -$3.12
Dec10 -$4.19
Dec09 -$3.92
Dec08 -$2.78
Dec07 -$0.46
Dec06 $3.61
Dec05 $3.75
Dec04 $2.57
Dec03 $1.83
Dec02 $1.41
Dec01 $1.10
Dec00 $0.86
Dec99 $0.69

Recommended Reading:

Other ModernGraham posts about the company

10 Low PE Stocks for the Enterprising Investor – January 2016
10 Low PE Stocks for the Enterprising Investor – November 2015
10 Most Undervalued Companies for the Enterprising Investor – November 2015
10 Companies Benjamin Graham Would Invest In Today – November 2015
10 Most Undervalued Companies for the Enterprising Investor – October 2015

Other ModernGraham posts about related companies

Lennar Corporation Valuation – November 2015 Update $LEN
Home Depot Inc. Valuation – November 2015 Update $HD
Quanta Services Inc. Valuation – October 2015 Update $PWR
Fluor Corporation Valuation – October 2015 Update $FLR
Martin Marietta Materials Inc. Valuation – October 2015 Update $MLM
Jacobs Engineering Group Analysis – October 2015 Update $JEC
D.R. Horton Inc. Analysis – October 2015 Update $DHI
The Best Companies of the Construction Industry – October 2015
Mohawk Industries Inc. Analysis – October 2015 Update $MHK
PulteGroup Inc. Analysis – October 2015 Update $PHM

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.

PulteGroup Inc. Analysis – October 2015 Update $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 Most Undervalued Companies for the Defensive Investor – September 2015.  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. (PulteGroup) is a homebuilder operating in the United States. The Company’s subsidiaries engage in the homebuilding business. The Company also offers mortgage banking operations through Pulte Mortgage LLC (Pulte Mortgage) and title operations. It offers a variety of home designs, including single-family detached, townhouses, condominiums and duplexes. It has delivered approximately 640,000 homes. It operates in approximately 49 markets located throughout 26 states. The Company operates through its Homebuilding and Financial Services segments. The Company’s Homebuilding Operations include the acquisition and development of land for residential purposes within the United States and the construction of housing on such land. The Financial Services operations consist of mortgage banking and title operations.

[level-free]

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of PHM

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 $6,676,331,960 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.90 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 -176.43% Fail
6. Moderate PEmg Ratio PEmg < 20 8.96 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.51 Pass
Score
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 2.90 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.48 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
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 October 2015

EPSmg $2.14
MG Growth Estimate 15.00%
MG Value $82.21
Opinion Undervalued
MG Value based on 3% Growth $30.96
MG Value based on 0% Growth $18.15
Market Implied Growth Rate 0.23%
Current Price $19.14
% of Intrinsic Value 23.28%

PulteGroup Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years, along with the inconsistent dividend history.  The Enterprising Investor is only initially concerned by the lack of earnings stability over the last five years.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $3.12 in 2011 to an estimated gain of $2.14 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 0.23% 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.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on PulteGroup Inc. (PHM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

PHM charts October 2015

Net Current Asset Value (NCAV) $4.98
Graham Number $19.18
PEmg 8.96
Current Ratio 2.90
PB Ratio 1.51
Dividend Yield 1.52%
Number of Consecutive Years of Dividend Growth 3

 

[/not-level-free]

Useful Links:

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

Most Recent Balance Sheet Figures

Total Current Assets $5,366,095,000
Total Current Liabilities $1,848,846,000
Long-Term Debt $1,702,851,000
Total Assets $8,157,956,000
Intangible Assets $116,665,000
Total Liabilities $3,551,697,000
Shares Outstanding (Diluted Average) 364,241,000

Earnings Per Share History

Next Fiscal Year Estimate $1.26
Dec14 $1.26
Dec13 $6.72
Dec12 $0.54
Dec11 -$0.55
Dec10 -$2.90
Dec09 -$3.94
Dec08 -$5.81
Dec07 -$8.94
Dec06 $2.66
Dec05 $5.68
Dec04 $3.79
Dec03 $2.49
Dec02 $1.84
Dec01 $1.50
Dec00 $1.12
Dec99 $1.02
Dec98 $0.58
Dec97 $0.30
Dec96 $0.90
Dec95 $0.27

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.14
Dec14 $2.05
Dec13 $1.62
Dec12 -$1.46
Dec11 -$3.12
Dec10 -$4.19
Dec09 -$3.92
Dec08 -$2.78
Dec07 -$0.46
Dec06 $3.61
Dec05 $3.75
Dec04 $2.57
Dec03 $1.84
Dec02 $1.41
Dec01 $1.10
Dec00 $0.86
Dec99 $0.69

Recommended Reading:

Other ModernGraham posts about the company

10 Companies Benjamin Graham Would Invest In Today – September 2015
10 Low PE Stocks for the Enterprising Investor – August 2015
10 Most Undervalued Companies for the Enterprising Investor – August 2015
5 Undervalued Companies for Value Investors with a High Beta – August 2015
5 Low PE Stocks for the Enterprising Investor – July 2015

Other ModernGraham posts about related companies

Masco Corporation Analysis – September 2015 Update $MAS
Flowserve Corporation Analysis – August 2015 Update $FLS
Alexander & Baldwin Inc Analysis – Initial Coverage $ALEX
Lennar Corporation Analysis – August 2015 Update $LEN
Aecom Analysis – Initial Coverage $ACM
Quanta Services Inc. Analysis – July 2015 Update $PWR
Fluor Corporation Analysis – July 2015 Update $FLR
Martin Marietta Materials Inc. Analysis – Initial Coverage $MLM
D.R. Horton Inc. Analysis – July 2015 Update $DHI
Jacobs Engineering Group Inc. Analysis – July 2015 Update $JEC

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.

PulteGroup Analysis – June 2015 Update $PHM

logo (1)PulteGroup (PHM) has shown significant earnings growth over the last several years, a factor that immediately attracts some investors. In addition, multiple analysts have been raving about the value opportunity based on qualitative factors. For example, Seeking Alpha contributor Harsh Singh Chauhan recently wrote about the company’s growing backlog and expectations regarding the impact of better employment conditions. These qualitative issues are excellent to consider in the final stages of an investment decision, but first one must use quantitative metrics to determine the company’s intrinsic value.

Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using theModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

PHM Chart

PHM data by YCharts

[level-free]
To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
[/level-free]
[level-mg-stocks-screens-subscriber]

Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – PASS
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – Has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – FAIL
  6. Moderate PEmg (price over normalized earnings) ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $20.48
MG Value $81.06
MG Opinion Undervalued
Value Based on 3% Growth $30.53
Value Based on 0% Growth $17.90
Market Implied Growth Rate 0.61%
Net Current Asset Value (NCAV) $5.43
PEmg 9.73
Current Ratio 3.16
PB Ratio 1.60

Balance Sheet – March 2015

Current Assets $5,701,000,000
Current Liabilities $1,804,000,000
Total Debt $1,888,000,000
Total Assets $8,433,000,000
Intangible Assets $120,000,000
Total Liabilities $3,691,000,000
Outstanding Shares 370,100,000

Earnings Per Share

2015 (estimate) $1.17
2014 $1.26
2013 $6.72
2012 $0.54
2011 -$0.55
2010 -$2.90
2009 -$3.94
2008 -$5.81
2007 -$8.94
2006 $2.66
2005 $5.68

Earnings Per Share – ModernGraham

2015 (estimate) $2.11
2014 $2.05
2013 $1.62
2012 -$1.46
2011 -$3.12
2010 -$4.19

Dividend History

PHM Dividend Chart

PHM Dividend data by YCharts

Conclusion

PulteGroup is not suitable for Defensive Investors but it does pass the initial requirements of the Enterprising Investor. The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years, and the unstable dividend history, while the Enterprising Investor’s only concern is the lack of earnings stability over the last five years. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from a loss of $3.12 in 2011 to an estimated gain of $2.11 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of only 0.61% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged considerably more than the market’s estimate annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that PulteGroup is significantly undervalued at the present time, a result which is in line with some of its peers.

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.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

[/level-mg-stocks-screens-subscriber]

PulteGroup Inc. Quarterly Valuation – March 2015 $PHM

logo (1)

PulteGroup Inc. performs well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the inconsistent dividend history and the insufficient earnings stability or growth over the last ten years, while the Enterprising Investor is only concerned by the lack of earnings stability over the last five years. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from a loss of $4.19 in 2010 to a gain of $2.05 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 1.01% annual earnings growth over the next 7-10 years. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.

Be sure to check out previous ModernGraham valuations of PulteGroup Inc. (PHM) for a greater perspective!

Read the full valuation on Seeking Alpha!

PHM Chart

PHM data by YCharts

Disclaimer: The author did not hold a position in PulteGroup Inc. (PHM) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

PulteGroup Inc. Quarterly Valuation – December 2014 $PHM

logo (1)

PulteGroup performs quite well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the lack of earnings or dividend stability over the last ten years and the low earnings growth over that period, while the Enterprising Investor is only concerned by the lack of earnings stability over the last five years. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from a loss of $4.19 in 2010 to an estimated gain of $1.98 for 2014. This is a very strong level of demonstrated growth which is well above the market’s implied estimate of only 0.93% annual earnings growth over the next 7-10 years. Here, the historical growth in EPSmg over the last five years is around 29.43% per year, which is clearly unsustainable over a long period of time. As a result, the ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur. The ModernGraham estimate is capped at 15% annual growth, which is still significantly higher than the market estimate. A significant slowdown would have to occur to justify a price as low as the market is demonstrating. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.

Be sure to check out previous ModernGraham valuations of PulteGroup for a greater perspective!

Read the full valuation on Seeking Alpha!

PHM Chart

PHM data by YCharts

Disclaimer:  The author did not hold a position in PulteGroup Inc. (PHM) at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

PulteGroup Inc. Quarterly Stock Valuation – September 2014 $PHM

logo (1)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 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – September 2014.  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 specific look at how PulteGroup Inc. (PHM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): PulteGroup, Inc. (PulteGroup) is a homebuilder in the United States. The Company’s subsidiaries engage primarily in the homebuilding business. PulteGroup also has mortgage banking operations, conducted principally through Pulte Mortgage LLC (Pulte Mortgage), and title operations. Homebuilding, its core business, includes the acquisition and development of land primarily for residential purposes within the United States and the construction of housing on such land. Homebuilding offers a product line to meet the needs of home buyers in its targeted markets. The Company also has one segment for its financial services operations, which consist principally of mortgage banking and title operations. Its Financial Services segment operates generally in the same geographic markets as its Homebuilding segments. In August 2014, the Company acquired the real estate assets of Dominion Homes.
PHM Chart

PHM data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years - FAIL
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $19.58
MG Value $78.28
MG Opinion Undervalued
Value Based on 3% Growth $29.48
Value Based on 0% Growth $17.28
Market Implied Growth Rate 0.56%
Net Current Asset Value (NCAV) $4.36
PEmg 9.63
Current Ratio 2.80
PB Ratio 1.59

Balance Sheet – 6/30/2014

Current Assets $5,469,700,000
Current Liabilities $1,955,200,000
Total Debt $1,874,100,000
Total Assets $8,467,300,000
Intangible Assets $129,600,000
Total Liabilities $3,829,300,000
Outstanding Shares 376,450,000

Earnings Per Share

2014 (estimate) $1.16
2013 $6.77
2012 $0.54
2011 -$0.55
2010 -$2.90
2009 -$3.94
2008 -$5.81
2007 -$9.02
2006 $2.67
2005 $5.47
2004 $3.84

Earnings Per Share – ModernGraham

2014 (estimate) $2.03
2013 $1.64
2012 -$1.46
2011 -$3.12
2010 -$4.20
2009 -$3.95

Dividend History
PHM Dividend Chart

PHM Dividend data by YCharts

Conclusion:

PulteGroup qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the lack of earnings stability or growth over the last ten years.  The Enterprising Investor is concerned by the lack of earnings stability over the last five years.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $4.20 in 2010 to an estimated gain of $2.03 for 2014.  This level of earnings growth outpaces the market’s implied estimate of 0.56% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on PulteGroup Inc. (PHM)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in PulteGroup Inc. (PHM) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

Lowe’s Companies Inc Valuation – March 2019 #LOW

Company Profile (excerpt from Reuters): Lowe’s Companies, Inc. (Lowe’s), incorporated on August 1, 1952, is a home improvement company. The Company operates approximately 2,370 home improvement and hardware stores. The Company offers a range of products for maintenance, repair, remodeling and decorating. The Company offers home improvement products in categories, including Lumber and Building Materials; Tools and Hardware; Appliances; Fashion Fixtures; Rough Plumbing and Electrical; Lawn and Garden; Seasonal and Outdoor Living; Paint; Flooring; Millwork, and Kitchens. The Company also supports the communities that focus on K-12 public education and community improvement projects. The Company serves its customers in the United States, Canada and Mexico.

LOW Chart

LOW data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LOW – March 2019

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 $84,769,831,466 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.98 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 184.80% Pass
6. Moderate PEmg Ratio PEmg < 20 25.07 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 23.25 Fail
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 0.98 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -53.50 Fail
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

EPSmg $4.22
MG Growth Estimate 11.58%
MG Value $133.62
Opinion Fairly Valued
MG Grade C-
MG Value based on 3% Growth $61.19
MG Value based on 0% Growth $35.87
Market Implied Growth Rate 8.28%
Current Price $105.79
% of Intrinsic Value 79.17%

Lowe’s Companies, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $2.38 in 2016 to an estimated $4.22 for 2020. This level of demonstrated earnings growth supports the market’s implied estimate of 8.28% 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 within a margin of safety relative to the price.

At the time of valuation, further research into Lowe’s Companies, Inc. revealed the company was trading above its Graham Number of $24.75. The company pays a dividend of $1.85 per share, for a yield of 1.7% Its PEmg (price over earnings per share – ModernGraham) was 25.07, which was above the industry average of 20.99. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-20.77.

Lowe’s Companies, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$20.77
Graham Number $24.75
PEmg 25.07
Current Ratio 0.98
PB Ratio 23.25
Current Dividend $1.85
Dividend Yield 1.75%
Number of Consecutive Years of Dividend Growth 20

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 1/1/2019
Total Current Assets $14,228,000,000
Total Current Liabilities $14,497,000,000
Long-Term Debt $14,391,000,000
Total Assets $34,508,000,000
Intangible Assets $303,000,000
Total Liabilities $30,864,000,000
Shares Outstanding (Diluted Average) 801,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $6.00
Jan2019 $2.84
Jan2018 $4.09
Jan2017 $3.47
Jan2016 $2.73
Jan2015 $2.71
Jan2014 $2.14
Jan2013 $1.69
Jan2012 $1.43
Jan2011 $1.42
Jan2010 $1.21
Jan2009 $1.49
Jan2008 $1.86
Jan2007 $1.99
Jan2006 $1.73
Jan2005 $1.35
Jan2004 $1.13
Jan2003 $0.93
Jan2002 $0.65
Jan2001 $0.52
Jan2000 $0.44

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.22
Jan2019 $3.28
Jan2018 $3.34
Jan2017 $2.82
Jan2016 $2.38
Jan2015 $2.10
Jan2014 $1.72
Jan2013 $1.49
Jan2012 $1.42
Jan2011 $1.47
Jan2010 $1.55
Jan2009 $1.71
Jan2008 $1.75
Jan2007 $1.61
Jan2006 $1.33
Jan2005 $1.06
Jan2004 $0.85

Recommended Reading:

Other ModernGraham posts about the company

Best Dividend Paying Stocks for Dividend Growth Investors – February 2019
Best Dividend Paying Stocks for Dividend Growth Investors – August 2018
Best Dividend Paying Stocks for Dividend Growth Investors – June 2018
Lowe’s Companies Inc Valuation – June 2018 $LOW
Lowe’s Companies Inc Valuation – March 2017 $LOW

Other ModernGraham posts about related companies

Quanta Services Inc Valuation – March 2019 #PWR
Mohawk Industries Inc Valuation – March 2019 #MHK
Jacobs Engineering Group Inc Valuation – March 2019 #JEC
Masco Corp Valuation – February 2019 $MAS
D.R. Horton Inc Valuation – February 2019 $DHI
Martin Marietta Materials Inc Valuation – February 2019 $MLM
Fluor Corp Valuation – February 2019 $FLR
Lennar Corp Valuation – February 2019 $LEN
Vulcan Materials Co Valuation – February 2019 $VMC
PulteGroup Inc Valuation – January 2019 $PHM

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.

Back To Top