PHM PulteGroup
Cyclical margin reset underway; stock still prices in a recovery that hasn't arrived.
The story
PulteGroup is a top-tier homebuilder enjoying post-2020 scale and pricing power, but operating margins have compressed from 22.3% to 15.2% as the rate-driven housing downcycle bites. With TTM revenue declining and margins sliding toward historical norms of 12-14%, the cyclical reset is underway. The balance sheet is clean (near-zero net debt), but the stock at $120 still prices in a recovery that hasn't arrived.
Y1 growth nudged from -2% to -3% as TTM revenue confirms contraction and recent news skews bearish. Target margin trimmed from 14% to 13.5% to reflect the faster-than-expected margin compression now visible (15.2% TTM vs 16.8% last annual), converging toward the historical 12-14% cyclical range. All other drivers held: the story of a solid builder sliding from peak margins into a rate-driven downcycle remains intact.
Value drivers
| Revenue growth (Y1) | -3.0% |
| Terminal growth | 2.5% |
| Forecast horizon | 5y |
| Target operating margin | 13.5% |
| Years to target margin | 5 |
| Sales-to-capital | 1.10 |
| Beta | 1.60 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 11.4% |
| Terminal WACC | 8.9% |
Valuation bridge
| PV of explicit FCFF | 5.98B |
| PV of terminal value | 12.43B |
| Equity value | 18.04B |
| ÷ shares → per share | $94.71 |
News
bearish -0.30 · 8 articles
- PulteGroup (PHM) Falls More Steeply Than Broader Market: What Investors Need to Know
- PulteGroup (PHM) Stock Could Be 40% Undervalued On Cash Flow Strength
- What Is Drawing Attention To PulteGroup (PHM) Today?
- UiPath downgraded, Shell upgraded: Wall Street's top analyst calls
- Here Are Friday’s Top Wall Street Analyst Research Calls: Ambarella, Cal-Maine Foods, Lennar, Ormat Technologies, Paychex, PulteGroup, Shell plc, TotalEnergies, W.P. Carey, and More
- Why the Weak Housing Market Is a Threat to the Broader Economy
- These 3 GARP Stocks Show Why Growth and Value Do Not Have to Clash
- PulteGroup (PHM) Stock Sinks As Market Gains: What You Should Know
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 15.91B | -3.0% | 14.9% | 1.80B | 0 | 1.80B | 1.62B |
| 2 | 15.66B | -1.6% | 14.5% | 1.73B | 0 | 1.73B | 1.40B |
| 3 | 15.62B | -0.2% | 14.2% | 1.69B | 0 | 1.69B | 1.22B |
| 4 | 15.79B | 1.1% | 13.8% | 1.67B | 159.72M | 1.51B | 978.62M |
| 5 | 16.19B | 2.5% | 13.5% | 1.67B | 358.93M | 1.31B | 762.09M |
Key risks
- Mortgage rates stay elevated longer, deepening the housing downturn
- Margin compression accelerates beyond cyclical norms if incentives escalate
- Demographic tailwind from millennials could sustain demand despite rates
Catalysts
- Fed rate cuts would directly revive housing demand and builder margins
- Continued share buybacks at discounted valuations could support floor price
- Housing supply shortage keeps new construction pricing power intact