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TheStreet Open House

Will This Downgrade Hurt PulteGroup (PHM) Today?

NEW YORK (TheStreet) -- Barclays downgraded PulteGroup (PHM) to "underweight" from "equal weight" and lowered its price target to $20 from $21 in a note published Tuesday.

Barclays said the reason for the downgrade was because the homebuilder's shares were priced higher than they should be, and that the stock was overvalued.

"PHM, in fact, is a name that we very much like for its cautious land spend relative to peers over the past year, its strong profitability and its best-in-class balance sheet. All of these factors should allow the company to ride out any short-term gyrations in the market with greater stability, and justify a premium valuation to peers," Barclays said.

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"Unfortunately," the note continued, "even after factoring in anticipated share repurchases, relatively strong margin performance, and no additional mortgage putback charges, we find Pulte shares simply too expensive to recommend at this time."

PulteGroup shares were down 0.27% to $18.89 in early trading Tuesday.

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Separately, TheStreet Ratings team rates PULTEGROUP INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate PULTEGROUP INC (PHM) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Household Durables industry. The net income increased by 274.6% when compared to the same quarter one year prior, rising from $58.74 million to $220.05 million.
  • PHM's revenue growth trails the industry average of 28.2%. Since the same quarter one year prior, revenues slightly increased by 5.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The current debt-to-equity ratio, 0.47, is low and is below the industry average, implying that there has been successful management of debt levels.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Household Durables industry and the overall market, PULTEGROUP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • PULTEGROUP INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, PULTEGROUP INC increased its bottom line by earning $6.74 versus $0.53 in the prior year. For the next year, the market is expecting a contraction of 82.4% in earnings ($1.19 versus $6.74).
  • You can view the full analysis from the report here: PHM Ratings Report
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