PulteGroup is Buying Back $1.5 Billion in Stock During a Crash

Key Points

• Despite a market downturn, PulteGroup management is looking to buy back as much as $1.5 billion worth of stock. 
• This decision might be justified by relying on bullish financial momentum and double-digit upside from Wall Street analysts. 
• The real estate sector shows signs of a potential bottoming, with markets showing optimism for the future.

Most investors see the art of risk management as cutting out their positions during a market downturn, as drawdowns typically get larger and larger when the bearish momentum gets underway. However, there is another school of thought for those in the market familiar with the companies they hold, so any drawdown or market discount is seen as an opportunity rather than a risk.

This is why investors should watch recent stock buyback announcements during market swings, especially to the downside. If company management (the real insiders) are allocating significant capital to buy their own stock, they fall into the latter school of thought, which commands buying more of the stock an investor is familiar with when presented with a reasonable discount.

Among the many companies buying back stock, PulteGroup Inc. NYSE: PHM is a notable one for investors, especially as Warren Buffett has expressed his interest in the home-building industry since 2023. Today’s indicators suggest that Oracle has been right again. Still, they also indicate additional upside to be had despite the bearish sentiment from some Wall Street analysts.

PulteGroup Stock Set to Soar with the New Real Estate Cycle

While today's real estate sector doesn't look that bullish to many, with United States building permits seeing a 7% contraction on the year and a 3.5% decline on the month. Adding to the downturn is the lowest mortgage market index since 1996 approximately.

However, this also means that the bottom could be in soon for the industry, and markets have given investors enough evidence of this being a fact. The Vanguard Real Estate ETF NYSEARCA: VNQ is now trading near a new 52-week high today, showing bullish price action to be the first forward-looking indicator for better sentiment ahead.

Pushing this sentiment higher is the current housing shortage across the United States, which, according to this report from Zillow Group Inc. NASDAQ: Z, suggests that the nation is short about 4.5 million homes. This shortage calls for new inventory to be offered into the market quickly.

This would also help the Federal Reserve's agenda to lower inflation, as rent inflation is now the main concern for consumers. More inventory could lead to lower prices. This is where PulteGroup comes into play.

Wall Street's Take on PulteGroup Stock Today

Recently, analysts at Citigroup quoted a bearish outlook for homebuilding stocks like PulteGroup and D.R. Horton Inc. NYSE: DHI, citing a sluggish housing market. These views might have been wrong, as most go against Warren Buffett’s portfolio.

Today, others on Wall Street have reiterated the reality that lies ahead for PulteGroup. J.P. Morgan Chase slapped a price target of $152 a share for the homebuilding stock, daring it to rally by as much as 19% from where it trades today.

This price target would not only be a double-digit upside opportunity but also a new all-time high for the company’s price. Accepting the bullish evidence surrounding PulteGroup stock, up to $2.2 billion of institutional capital made its way into the company over the past 12 months.

Among these buyers, Raymond James & Associates saw fit to boost their stake in PulteGroup stock by 7.6% as of July 2024, bringing their net investment up to $35.9 million today. Investors need more than just technical factors to justify potential additions to their watchlists. Here is some fundamental evidence to support the decision.

Strong Quarterly Results Justify Buybacks for PulteGroup Stock

Looking into recent financial momentum, investors can find additional bullish evidence inside PulteGroup’s second quarter 2024 earnings press release. Leading the announcement with a 19% jump in earnings per share (EPS) to $3.83 places today’s Wall Street forecasts on the conservative end of the spectrum.

Expecting only 5.4% EPS growth for the next 12 months is significantly below the company’s historical performance. Besides, PulteGroup still has a backlog of up to 12,982 homes to be built, with a value of over $8.1 billion, which will eventually translate into revenue and earnings.

All told, management is now confident that the stock could reach a new high, which is why they are allocating up to $1.5 billion into a new share buyback program, especially during a time when the S&P 500 is down over 3% in one week, and weakening economic data from the ISM manufacturing PMI index is scaring off some from the stock market.