PulteGroup (PHM)

Homebuilding company PulteGroup (NYSE:PHM) reported Q3 CY2025 results topping the market’s revenue expectations, but sales fell by 1.6% year on year to $4.4 billion. Its non-GAAP profit of $2.96 per share was 2.5% above analysts’ consensus estimates.

Company Overview

Having delivered over 850,000 homes since its founding in 1950, PulteGroup (NYSE:PHM) is one of America's largest homebuilders, constructing single-family homes, townhouses, and condominiums for first-time, move-up, and active adult buyers across 46 markets in 25 states.

Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.

PulteGroup competes with other major U.S. homebuilders including D.R. Horton (NYSE:DHI), Lennar Corporation (NYSE:LEN), NVR (NYSE:NVR), and Toll Brothers (NYSE:TOL), as well as numerous regional and local builders across its markets.

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, PulteGroup’s sales grew at a solid 10.4% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. PulteGroup’s recent performance shows its demand has slowed as its annualized revenue growth of 2.3% over the last two years was below its five-year trend.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. PulteGroup’s backlog reached $6.23 billion in the latest quarter and averaged 8.2% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, PulteGroup’s revenue fell by 1.6% year on year to $4.4 billion but beat Wall Street’s estimates by 2.2%.

Looking ahead, sell-side analysts expect revenue to decline by 6.2% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

PulteGroup’s gross margin is slightly below the average industrials company, giving it less room to invest in areas such as research and development. As you can see below, it averaged a 28.3% gross margin over the last five years. That means PulteGroup paid its suppliers a lot of money ($71.66 for every $100 in revenue) to run its business.

PulteGroup produced a 26.4% gross profit margin in Q3, down 2.6 percentage points year on year. PulteGroup’s full-year margin has also been trending down over the past 12 months, decreasing by 2.4 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

PulteGroup has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 20.2%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, PulteGroup’s operating margin rose by 1.4 percentage points over the last five years, as its sales growth gave it operating leverage. Its expansion was impressive, especially when considering most Home Builders peers saw their margins plummet.

In Q3, PulteGroup generated an operating margin profit margin of 17.3%, down 2.6 percentage points year on year. Since PulteGroup’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

PulteGroup’s EPS grew at an astounding 22.1% compounded annual growth rate over the last five years, higher than its 10.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into PulteGroup’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, PulteGroup’s operating margin declined this quarter but expanded by 1.4 percentage points over the last five years. Its share count also shrank by 26.3%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For PulteGroup, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q3, PulteGroup reported adjusted EPS of $2.96, down from $3.35 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 2.5%. Over the next 12 months, Wall Street expects PulteGroup’s full-year EPS of $12.06 to shrink by 10.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

PulteGroup has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.4% over the last five years, better than the broader industrials sector.

PulteGroup’s free cash flow clocked in at $651.1 million in Q3, equivalent to a 14.8% margin. This result was good as its margin was 5.5 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although PulteGroup hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 25.1%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, PulteGroup’s ROIC averaged 2.9 percentage point decreases each year. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

PulteGroup reported $1.48 billion of cash and $2.03 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $3.41 billion of EBITDA over the last 12 months, we view PulteGroup’s 0.2× net-debt-to-EBITDA ratio as safe. We also see its $42.3 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing PulteGroup beat analysts’ adjusted operating income expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its backlog missed and its EBITDA fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. The stock remained flat at $119.08 immediately following the results.

When considering an investment in PulteGroup, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

PulteGroup isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s impressive operating margins show it has a highly efficient business model, the downside is its backlog declined.

PulteGroup’s P/E ratio based on the next 12 months is 11.1x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $138.42 on the company (compared to the current share price of $119.08).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.