The housing market has remained red hot amid even the worst of the COVID-19 pandemic thanks to the near-zero interest-rate environment and a rising demand for bigger and better domiciles in suburban areas in response to requisite remote working, learning and entertainment. And because the work-from-home trend is expected to continue even in the post-pandemic world, given its benefits to employees and employers, the demand for new houses should not decline anytime soon…
The NAHB housing market index in the United States edged up one point to 83 in April 2021. Moreover, investors’ interest in the homebuilding stocks is evident in the SPDR S&P Homebuilders ETF’s (XHB) 27.2% gains over the past three months compared to the SPDR S&P 500 ETF Trust (SPY) 13.5% returns.
Given the powerful demand for houses, suppliers are challenged by low inventory. Millennial home ownership is also on the rise despite rising home prices. Amid this favorable backdrop, we think it is wise to bet on established homebuilding companies that are positioned to capitalize on the tailwinds. We believe Lennar Corporation (LEN – Get Rating), PulteGroup, Inc. (PHM – Get Rating), and Skyline Champion Corporation (SKY – Get Rating) are such companies and are best picks in this space now.
Lennar Corporation (LEN – Get Rating)
One of America’s leading homebuilders, LEN primarily operates under the Lennar brand.The company operates through the following segments:Homebuilding East, Homebuilding Central, Homebuilding Texas, Homebuilding West, Financial Services, Multifamily, and Lennar. It also offers residential mortgage financing, title insurance, and closing services for home buyers and others.
LEN’s $5.33 billion in net sales for its fiscal year 2021 first quarter, ended February 28, represents a 18.2% year-over-year rise. The company’s net income has increased 151.3% year-over-year to $1.00 billion. LEN’s EPS came was $3.20, up 152% year-over-year.
For the current quarter, ending May 31, analysts expect LEN’ EPS to be $2.36, which represents a 43% year-over-year increase. LEN also surpassed consensus EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 13% year-over-year to $25.41 billion in its fiscal year 2021.
In March, LEN unveiled its Upward America Venture. The platform is expected to acquire single family homes for rent in high-growth markets across the United States. The venture will be positioned to spend more than $4 billion on new single-family homes and town homes acquired from LEN and potentially other homebuilders.
The stock has gained 97.3% over the past year and closed yesterday’s trading session at $105.04. Wall Street analysts expect the stock to hit $109.15 in the near term, which indicates a potential 3.9% upside.
It’s no surprise that LEN has an overall B rating, which equates to BUY our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Sentiment and Momentum. Click here to see LEN’s rating for Value, Stability, Growth, and Quality as well.
LEN is ranked #4 of 25 stocks in the B-rated Homebuilders industry.
PulteGroup, Inc. (PHM – Get Rating)
Having delivered roughly 750,000 homes, PHM ranks as the nation’s 3rd largest homebuilding company, with operations across 23 states and 42 major markets. The company offers a range of home designs, including single-family detached, townhouses, condominiums and duplexes through its brands—Centex, Pulte Homes, and Del Webb, among others. It operates through two segments: Homebuilding and Financial Services.
For its fiscal year 2021 first quarter, ended March 31, 2021, PHM’s total revenues were $2.73 billion, up 18.9% year-over-year. The company’s net income came in at $304.11 million, which represents a 49.3% year-over-year increase. Its EPS increased 52% year-over-year to $1.14.
PHM’s EPS for the quarter ending September 30 is expected to increase 42.2% year-over-year to $2.19. Also, PHM surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to be t $14.81 billion in fiscal 2021, which represents a 34.2% year-over-year rise.
On April 27, PHM’s Board of Directors approved a $1 billion increase to its share purchase authorization, which brings its total share repurchase authorization to $1.2 billion. This reflects the company’s commitment to create long-term value for its shareholders.
The stock has…
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