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Pulte Rises Above Homebuilder Rivals

BOSTON ( TheStreet) -- Pulte (PHM - Get Report), which became the biggest U.S. residential homebuilder after buying rival Centex last year, is back from the brink. Following improved first-quarter results, it was upgraded to "hold" at TheStreet.

Competitors Toll Brothers (TLL), KB Home (KBH - Get Report) and Beazer (BZH - Get Report) are still rated "sell."

Pulte's first-quarter loss narrowed to $12 million, or 3 cents a share, from a loss of $515 million, or $2.02, a year earlier. Chief Executive Officer Richard J. Dugas Jr. expects the company to be profitable this year after orders surged 43% and the cancellation rate dropped to 18% from 21%. Revenue jumped 75% to $1 billion.

Pulte has $2.6 billion of cash and $4.3 billion of debt, which improves its debt-to-equity ratio to 1.4. During the quarter, it became profitable on a gross basis.

The housing market is on the mend. Mortgage applications gained 3.9% this week, and forecasters expect April housing starts to have risen to 650,000 from 626,000 in March. April building permits are expected to hold steady at March figures.

Despite the pickup in demand, Pulte provided a cautious outlook, citing high unemployment and low consumer confidence. In addition, a glut of pre-owned homes, particularly foreclosed properties, and the expiration of a government homebuyer tax credit aren't helping. But Pulte's 50% increase in cash and equivalents puts it on superior footing to endure what will likely prove to be a slow turnaround.

Analysts remain lukewarm on the stock. Of those rating Pulte, two advise purchasing its shares, 11, or 65%, recommend holding and four suggest selling them. JPMorgan (JPM), which is "neutral" on the stock, expects it to rise 23% to $15. Bank of America (BAC), which rates the stock "buy," and Citigroup (C), which ranks it "hold," offer a price target of $14. Goldman Sachs (GS) and UBS (UBS) have a "sell" rating on Pulte.

Institutional holders have a bullish view. Of Pulte's 20 largest shareholders, 15, including State Street (STT) and BlackRock (BLK), purchased additional stock during the fourth quarter. Four, including Fidelity, decreased their holdings. Bill Pulte, the company's founder, held steady with an 11% stake. Critics of the stock surge call it a "junk rally." But housing hasn't enjoyed participation. Pulte stock has risen 13% in the past year, less than indices.
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