PulteGroup (NYSE:PHM) is a Homebuilder Beating the Odds

If you thought that a home builder couldn't make much headway in a coronavirus economy, when many home builders were shut down for at least a month thanks to lockdown guidelines, then something really unexpected happened in the last few hours. PulteGroup (NYSE: PHM), a nationwide homebuilder, saw some impressive gains as it beat estimates on several fronts, ranging from earnings per share to quarterly earnings to even overall revenue.

PulteGroup (NYSE: PHM) A Win for the Homebuilder In Terrible Times

While certainly, there were some losses due to coronavirus-related shutdowns, PulteGroup didn't let that stop it any longer than government mandate required. The company managed to beat estimates, and fairly handily, coming in at $1.15 per share, well ahead of estimates of $0.87 per share.

These numbers represent a fairly major turnaround for the company as a whole; looking back on the one-year figures, back in July of 2019, the company's share price was running at $30.69, and it was starting a mild if reliable upward trend. By the start of the new year, the company was up to $38.80, and both January and February for the company were looking upbeat. “Upbeat,” in fact, to the point that PulteGroup's share price on February 20 was $46.67; the company had gained almost as much in the first two months of the new year as it had in the last five of the previous ones combined.

That's when March showed up. Much like every other company around that wasn't selling groceries or pills, the stock price careened downward, hitting a new closing low of $17.74 on March 23. It took just short of 20 days for the stock to go from trading in the $40s to losing better than half its value.

Recovery, however, wasn't far behind; the company started a sawtooth gain-and-loss pattern that was clearly trending upward overall, until today, where the company stands at $43.44.

PulteGroup (NYSE: PHM) Surprise Boost From Market Conditions

So how did a company that lost better than half its market cap in just under three weeks manage to ultimately beat estimates?  While market conditions hurt them initially, the broader market also lent a hand. While it's hard to imagine people buying homes in any large numbers during these economic conditions, there is much buying going on; in fact, existing home inventories are currently in decline. Moreover, low-interest rates make taking out a mortgage comparatively attractive.

This much is demonstrated clearly by looking at some of the company's recent moves. Out in California, PulteGroup bought an old office park in San Mateo, looking to convert it into residences. Those looking skeptically at the notion of building housing in California, and not without reason, will find brighter spots elsewhere; PulteGroup is poised to bring over 100 new townhomes to a section of Apple Valley in Minnesota formerly geared toward gravel mining. That's just the start of the list; within the last month, PulteGroup has been spotted building developments in Georgia, Nevada, and on from there.

Looking at broader overall conditions also puts some light on things; the move toward work-from-home has fueled quite a few departures from major urban areas since commuting is no longer the priority it once was. As businesses reconsider the need to have physical offices in, say, downtown Manhattan when they can run the operation from a server room in Utica, the need to pay downtown Manhattan prices falls through the floor. Additionally, the recent unrest in several major cities is prompting departures as well; the notion of moving a young family two blocks down from the latest Antifa protest site almost certainly doesn't sit well with most.

How Long Can This Go On?

The good news for PulteGroup is that, at least in the near term, it's got very, very favorable market conditions. It's a safe bet that interest rates won't be going up in any appreciable fashion any time soon; an entire percentage point may actually be out of line in less than a year's time.

The demand for suburban and even rural homes may continue unabated for some time as urbanites look to leave; the inherent bargain of city-living is access to better jobs and cultural opportunities in exchange for high crowding, prices, and stress. With the jobs a bit shaky and the cultural opportunities still closed by government mandate, the bargain is looking a little less even.

This can't go on forever for PulteGroup; job losses will make homebuying inaccessible to many, and interest rates will have to go up eventually. For now, though, and for at least the next year, this homebuilder looks like it will carry on as long as it can find land to build on and lumber to build with.