The housing market has remained red hot amid the COVID-19 pandemic thanks to a near-zero interest-rate environment and a rising demand for bigger and better living spaces in suburban areas to make living and remote working more practical and comfortable. Because the work-from-home trend is expected to continue even in the post-pandemic world–given its benefits for employees and employers–the demand for new houses is not expected to decline any time soon.
The NAHB housing market index in the United States edged up 1 point to 83 in April 2021. The demand for single-family houses has increased significantly. According to the Census Bureau, the sale of new single-family houses increased to its peak since 2006 in March to a seasonally adjusted 1.021 million annual rate, up 21% from February 2021. Given the favorable industry backdrop, investors are rewarding homebuilding stocks, as evidenced by the SPDR S&P Homebuilders ETF’s (XHB) 16.8% gains over the past three months compared to the SPDR S&P 500 ETF Trust’s (SPY) 6.1% returns.
So, we think it could be wise to bet on established homebuilding companies Lennar Corporation (LEN), PulteGroup, Inc. (PHM),Tri Pointe Homes, Inc. (TPH), and Century Communities, Inc. (CCS). We believe they are well positioned to capitalize on the industry tailwinds.
Lennar Corporation (LEN)
One of top players in the homebuilding space, LEN operates primarily under the Lennar brand. The company’s segments include Homebuilding East, Homebuilding Central, Homebuilding Texas, Homebuilding West, Financial Services, Multifamily, and Lennar other. 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 first quarter, ended February 28,represents an 18.2% year-over-year rise. The company’s net income increased 151.3% year-over-year to $1.00 billion. Moreover, LEN’s EPS came in at $3.20, up 152% year-over-year.
For the current quarter, ending May 31, analysts expect LEN’s EPS to come in at $2.36, which represents a 43% year-over-year increase. It also surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive. The company’s revenue is expected to increase 13.8% year-over-year to $25.59 billion in fiscal 2021.
In March, LEN announced the formation of its Upward America Venture. The platform is expected to acquire single family homes for rent in high growth markets across the United States. The initiative is expected to help LEN expand its market reach. The stock has gained 104.5% over the past year to close Friday’s trading session at $99.71.
It’s no surprise that LEN has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock also has a B grade for Sentiment, Quality and Momentum. Click here to see LEN’s ratings for Value, Stability and Growth as well.
LEN is ranked #6 of 25 stocks in the B-rated Homebuilders industry.
PulteGroup, Inc. (PHM)
Having delivered roughly 750,000 homes throughout the United States, PHM ranks as the nation’s 3rd largest homebuilder, with operations across more than 40 major cities. The company offers a wide range of home designs that include 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 the first quarter, ended March 31, PHM’s total revenues were $2.73 billion, up 18.9% from the prior-year quarter. The company’s net income came in at $304.11 million, which represents a 49.3% increase from the same period last year. Its EPS increased 52% from prior-year quarter to $1.14.
The company’s EPS for the quarter ending September 30, 2021 is expected to increase 44.8%from prior-year quarter to $2.23. Also, PHM surpassed consensus EPS estimates in each of the trailing four quarters. Its revenue is expected to be $14.94 billion in its fiscal year 2021, which represents a 35.4% rise from the same period last year.
PHM announced on May 13 that its board of directors has approved a $0.14 cash dividend per common share, payable on July 2. This reflects the company’s commitment to creating long-term value for its shareholders as well as its strong capital structure. The stock has rallied 111.9% over the past year to close Friday’s trading session at $58.46.
PHM’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. It has a B grade for Momentum and Quality. In addition to these grades, one can see PHM’s ratings for Stability, Growth, Sentiment and Value here.
PHM is ranked #5 in the same industry.
Tri Pointe Homes, Inc. (TPH)
Formerly known as TRI Pointe Group, Inc., TPH designs, constructs and sells single-family attached and detached homes. The company’s homebuilding operation consists of six segments: Maracay Homes, Pardee Homes, Quadrant Homes, Trend maker Homes, TRI Pointe Homes, and Winchester Homes. It also provides financial services, including mortgage financing, title and escrow, and property and casualty insurance agency services.
TPH’s $718.90 million of total revenue for the first quarter, ended March 31, represents a 20.7% year-over-year increase. The company’s net income increased 122.1% year-over-year to $70.80 million. Also, its EPS came in at $0.59, up 145.8% year-over-year.
Analysts expect TPH’s EPS and revenue to increase 90.7% and 27.4%, respectively, year-over-year to $0.82 and $978.08 million for the current quarter, ending June 30. Furthermore, TPH surpassed the Street’s EPS estimates in each l of the trailing four quarters.
In January, TPH announced that it was consolidating its six regional homebuilding brands into one unified name—Tri Pointe Homes. TPH’s CEO Doug Bauer said, “The strategic decision to operate as one brand comes as we continue to organically grow our divisions across the country and look to drive more operational efficiencies at all levels of the organization.” The stock has rallied 126.2% over the past year to close Friday’s trading session at $24.77.
TPH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Momentum, Growth, Value and Quality also. Click here to see the additional POWR Ratings for TPH (Sentiment and Stability).
TPH is ranked #3 in the Homebuilders industry.
Century Communities, Inc. (CCS)
Operating across 17 states in the United States, CCS is engaged in all aspects of homebuilding, including the acquisition, entitlement and development of land and the construction, marketing and sale of homes. The company also offers title, insurance, and lending services in select markets through its Parkway Title, IHL Home Insurance Agency, and Inspire Home Loan subsidiaries.
Its total revenue for the first quarter ended March 31came in at $1.01 billion, which represents a 67.4% rise from the prior-year quarter. The company’s net income increased 289.1% from the same period last year to $101.70 million. Also, its EPS came in at $3.03, up 283.5% from the prior-year quarter.
Analysts expect CCS’ EPS and revenue to increase 139.1% and 71.2%, respectively, from the prior-year quarter to $2.75 and $980.64 million for the current quarter, ending June 30, 2021. Also, CCS surpassed consensus EPS estimates in each of the trailing four quarters.
CCS announced on April 23 that it is opening for sales at Deerbrook, which is Leander’s hotly anticipated planned community that resort-style amenities such as a multi-use community center, a fitness center, a dog park and miles of trails. This is expected to increase its consumer base. The stock has soared 238.8% over the past year to close Friday’s trading session at $77.66.
It’s no surprise that CCS has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Value, and a B grade for Sentiment, Growth and Momentum. Click here to see CCS’ ratings for Stability and Quality as well.
CCS is ranked #4 in the same Industry.
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LEN shares were trading at $97.32 per share on Monday afternoon, down $2.39 (-2.40%). Year-to-date, LEN has gained 28.35%, versus a 11.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
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