Despite being the largest homebuilder in the U.S., with operations in more than 50 markets, PulteGroup (PHM) suffers from high cyclicality in the industry. The company also faces intense competition from the resale of existing or foreclosed homes and available rental housing.
The sub-prime mortgage crisis will have a long-term impact on Pulte. It will continue to negatively impact Pulte’s sales and pricing in the homebuilding business, as well as reduce the volume and margins in its financial services business.
Therefore, we have downgraded our recommendation from Neutral to Underperform and set a target price of $11. Our $11 target price, or 27.5X our 2011 EPS estimate, reflects this view.Zacks Investment Research
