Can PulteGroup (PHM) Pull Off A Surprise In Q1 Earnings?

PulteGroup, Inc. (NYSE:PHM) , engaged in homebuilding and financial services, is scheduled to report first-quarter 2017 results on Apr 25, before the opening bell.

Last quarter, the company’s earnings surpassed expectation by 15.52%. Also, PulteGroup surpassed estimates in three of the last four quarters, resulting in an average positive surprise of 13.49%.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

PulteGroup’s management is positive about the housing industry and believes that demand will increase at a slow and steady pace over the next several years, supported by improving economic conditions, job creation and affordable interest/mortgage rates.

Continued favorable trends in the economy, job growth, demographics and consumer confidence can more than offset the impact of modestly higher rates, allowing the housing recovery to continue at a steady pace.

The company expects its previous land investment to position it well for consistent earnings growth. As revealed earlier, the company expects home sales gross margin of approximately 23.5% in the first quarter compared with 21.9% reported in the prior-year quarter.

Higher closing volumes and average selling price are expected to boost earnings in the to-be-reported quarter.

Pulte is also maximizing the value of its land assets by selling houses at higher prices and better margins, thereby using the resulting strong cash flow to invest in the business, pay off debt and systematically return to shareholders.

For the first quarter, the Zacks Consensus Estimate for earnings is pegged at 28 cents a share, reflecting an increase of 16.7% year over year, while the consensus for revenues is at $1.77 billion, implying 23.6% year-over-year growth.

Earnings Whispers

Our proven model does not conclusively show that PulteGroup is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: PulteGroup’s Earnings ESP is 0.00% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 28 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: PulteGroup’s Zacks Rank #2 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few companies in the construction sector that, according to our model, have the right combination of elements to post an earnings beat this quarter:

Louisiana-Pacific Corporation (NYSE:LPX) has an Earnings ESP of +27.59% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

It is slated to release quarterly results on May 5.

Weyerhaeuser Company (NYSE:WY) has an Earnings ESP of +12.50% and a Zacks Rank #2. The company is slated to release quarterly results on Apr 28.

Meritage Corporation (NYSE:MTH) has an Earnings ESP of +2.38% and a Zacks Rank #2. Meritage is slated to release quarterly results on Apr 27.

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