While the housing market has faced recent turbulence owing to the Fed’s hawkish stance keeping the mortgage rates wobbly, the long-term prospects of this industry seem to be bright, propelled by a growing population leading to increased demand for housing.
Given the backdrop, in this article, we will closely analyze three fundamentally sound homebuilder stocks PulteGroup, Inc. (PHM), Sekisui House, Ltd. (SKHSY), and Tri Pointe Homes, Inc. (TPH), gaining investors' attention, which could be solid portfolio additions in July.
Despite high mortgage rates and inflationary pressures, the housing market remains highly competitive thanks to strong demand and tight inventory supply.
Sales of new U.S. single-family homes rose to the highest level in over a year in May due to a shortage of previously owned homes for sale. According to the Commerce Department, May’s new home sales increased 12.2% to a seasonally adjusted annual rate of 763,000 units, the highest since February 2022.
The U.S. Treasury Department also reported that real construction spending on new manufacturing facilities had doubled this year compared to the 2005-2022 average, driven largely by infrastructure, semiconductors, clean energy subsidies, and tax incentives.
Moreover, U.S. single-family homebuilding projects saw a significant surge in May, the highest in over three decades. This was accompanied by increased permits for future construction, indicating that the housing market may be turning a corner after getting clobbered by Federal Reserve interest rate hikes.
Driven by increased demand, the U.S. residential construction market is anticipated to register a CAGR of over 3% between 2023 and 2028. At the same time, the global construction market is projected to be valued at approximately $10.54 trillion in 2023. It is expected to reach a staggering value of around $16.14 trillion by 2028, with an impressive CAGR of 8.9%.
Further, potential buyers can find some positive news as home prices are experiencing a slight decrease. According to Realtor.com®’s June housing data, the number of homes actively for sale increased by 7.1% compared to last year.
Moreover, the homebuilding sector has demonstrated remarkable resilience, as evident from the SPDR S&P Homebuilders ETF’s (XHB) 32.1% year-to-date gains.
To that end, let us delve deeper into the fundamentals of PHM, SKHSY, and TPH to find out what could make them attractive investment options this month.
PulteGroup, Inc. (PHM)
PHM is primarily engaged in the homebuilding business in the United States. It acquires and develops land for residential purposes and constructs housing on such land. The company also offers various home designs, including single-family detached, townhomes, condominiums, and duplexes.
On July 5, PHM paid its shareholders a quarterly dividend of $0.16 per share. The company’s annual dividend of $0.64 translates to a 0.83% yield on its prevailing prices, while its four-year average dividend yield is 1.20%.
Its dividend payouts have grown at CAGRs of 10.3% and 11.8% over the past three and five years, respectively. Also, it has a record of five years of consecutive dividend growth.
On March 8, the company expanded its footprint into the Greenville market, beginning with three new construction communities, namely Indigo Park, Briarwood Reserve, and Alston Park, under its Pulte Homes brand. This should help in boosting the company’s overall revenues.
Commenting on this expansion, the president of PHM’s Georgia division Chad Plunkett said, “We are thrilled to expand into the upstate region of South Carolina to help meet the growing demand for new homes. Greenville ranks among the most sought-after markets for homebuyers, thanks to its vibrant downtown district and growing hub for major employers.”
He also added that future development plans are underway for several new projects to expand its offerings in the market, including introducing its Centex brand to serve first-time homebuyers.
For the fiscal first quarter that ended on March 31, 2023, PHM’s total revenue increased 13.5% year-over-year to $3.58 billion. The company’s net income came in at $532.26 million, representing a 17.1% year-over-increase, while its EPS grew 28.4% from the prior-year quarter to $2.35.
The consensus revenue estimate of $4 billion for the second quarter (ended June 30, 2023) represents a marginal increase year-over-year. The consensus EPS estimate for the same quarter is expected to be $2.50.
Further, its EPS is expected to improve by 9.2% per annum over the next five years. Moreover, the stock has beaten consensus EPS estimates in three out of the trailing four quarters, which is promising.
PHM’s shares have gained 88.7% over the past nine months to close the last trading session at $77.12.
PHM’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Momentum and a B for Quality. In the 25-stock B-rated Homebuilders industry, it is ranked #5. Click here to see PHM’s ratings for Growth, Value, Stability, and Sentiment.
Sekisui House, Ltd. (SKHSY)
Headquartered in Osaka, Japan, SKHSY designs, constructs, and contracts built-to-order detached houses. The company operates through Custom Detached Houses; Rental Housing; Architectural/Civil Engineering; Remodeling, Real Estate Management Fees; Houses for Sale, Condominiums, Urban Redevelopment, and Overseas segments.
On February 13, SKHSY announced the acquisition of Gifu landscape architect Co., Ltd, which specializes in exterior construction, design knowledge, and technical capabilities. In May 2020, SKHSY and Gifu landscape architect established a business alliance, followed by a capital alliance in June of the same year.
This partnership has fostered a solid cooperative relationship, allowing the companies to enhance their collective ability to propose visually appealing exteriors and landscaping with a shared commitment to creating beautiful townscapes.
SKHSY’s net sales amounted to ¥708.28 billion ($4.90 billion) for the first quarter (ended April 30, 2023), while its operating income stood at ¥55.74 billion ($385.68 million).
During the same period, the company’s profit attributable to owners and EPS amounted to ¥41.93 billion ($290.12 million) and ¥63.31, respectively. Also, its total current assets came in at ¥2.13 trillion ($14.74 billion), increasing marginally compared to ¥2.09 trillion ($14.46 billion) as of January 31, 2023.
Analysts expect SKHSY’s revenue for the second quarter (ending July 31, 2023) to increase 8.5% year-over-year to $5.12 billion. Further, it is projected to reach $21.28 billion in the current year (ending January 2024), reflecting an improvement of 140.6% year-over-year.
The stock has gained 20% over the past nine months to close the last trading session at $20.39.
SKHSY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Value, Momentum, Stability, and Quality. Within the same B-rated industry, it is ranked #6. Click here to see the other ratings of SKHSY for Growth and Sentiment.
Tri Pointe Homes, Inc. (TPH)
TPH specializes in the construction and sale of single-family attached and detached homes. It sells its homes through its sales representatives and third-party brokers under six regional brands – Maracay, Pardee Homes, Quadrant Homes, Trendmaker Homes, Winchester Homes, and TRI Pointe Homes.
On May 25, TPH bagged the Builder of the Year award, among a total of eight awards at the 2023 Phoenix Metro MAME (Major Achievements in Merchandising Excellence) Awards. The Waterston North community developed by TPH was particularly acclaimed, winning four awards in addition to Best Design Center, Online Sales Team, and Rising Star of the Year.
The same month, TPH announced an exclusive, multi-year partnership with renowned design expert and Emmy-nominated TV personality Bobby Berk. Homebuyers across America would have the opportunity to explore a new range of design-forward interior collections curated by Berk, featuring styles such as organic modern and luxe bohemian.
As a part of this partnership, it is expected that Berk will design and curate over 20 TPH model homes annually, providing customers the chance to experience cohesive, integrated home designs personally. This strategic move should help the company enhance its offerings and stay competitive.
TPH’s total revenues increased 5.9% year-over-year to $770.79 million in the first quarter (ended March 31, 2023), while its adjusted EBITDA came in at $133.98 million.
During the same period, the company’s net income and EPS amounted to $74.74 million and $0.73, respectively. In addition, its cash and cash equivalents stood at $966.29 million, up 8.6% compared to $889.66 million as of December 31, 2022.
Street expects TPH’s EPS and revenue for the fiscal year 2024 (ending December 2024) to increase by 17.8% and 12.9% year-over-year to $3.75 and $3.90 billion, respectively. Additionally, it surpassed the EPS and revenue estimates in each of its trailing four quarters, which is excellent.
Over the past nine months, the stock has gained 95.6% to close the last trading session at $32.18.
It’s no surprise that TPH has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Momentum and a B for Value and Quality. Out of 25 stocks in the same industry, it is ranked #4.
In addition to the POWR Ratings we’ve stated above, we also have TPH’s ratings for Growth, Stability, and Sentiment. Get all TPH ratings here.
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PHM shares were trading at $75.18 per share on Thursday afternoon, down $1.94 (-2.52%). Year-to-date, PHM has gained 65.95%, versus a 15.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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