Despite the latest Federal Reserve interest rate increase this week, the demand for housing has remained strong. Popular real estate platform Zillow expects existing-home sales to increase 4.8% year-over-year to 6.42 million in 2022. While increased mortgage rates have reduced refinancing demand lately, home sales value has been increasing. This can be attributed to increased investments in homes and real estate amid shaky equity markets. Zillow expects the monthly home value to rise to 1.8% in March and 2% in April. By February 2023, the average home in the U.S. is expected to be worth nearly $400,000.
The seasonally adjusted annual rate of existing-home sales is expected to come in at 6.36 million for February, up 3.1% year-over-year. As tight supply conditions persist, with an inventory of unsold existing homes of 870,000 as of February, which is equivalent to 1.7 months of supply, housing prices are expected to rise further in the near term.
Given this backdrop, we think quality housing stocks PulteGroup, Inc. (PHM), Cavco Industries, Inc. (CVCO), and Cyrela Brazil Realty S.A. Empreendimentos e Participações (CYRBY) could be ideal investment bets. These stocks have an overall B rating, which equates to Buy in our proprietary POWR Ratings system.
PulteGroup, Inc. (PHM)
PMH in Atlanta, Ga., sells single-family detached homes, townhomes, condominiums, and duplexes under the Centex, Pulte Homes, Del Webb, DiVosta Homes, American West, and John Wieland Homes and Neighborhoods brand names.
On February 17, PHM opened a second Centex Community in Tucson, Ariz., comprising single- and two-story homes. This expansion is expected to boost PMH’s sales significantly.
Also last month, PMH increased its share purchase authorization fund by $1 billion. This is in addition to $458 million available in its prior share repurchase authorization. Such share repurchases should boost shareholder returns significantly.
PHM’s total revenue increased 36.5% year-over-year to $4.36 billion in the fourth quarter, ended Dec. 31, 2021. Its net income grew 51.4% from its year-ago value to $663.26 million, while its home sales revenue improved 38% year-over-year to $4.22 billion over the period. The company’s net income per share increased 61.1% from its year-ago value to $2.61.
The $1.72 consensus EPS estimate for its fiscal first quarter, ending March 31, 2022, represents a 34.4% improvement year-over-year. The $3.07 billion consensus revenue estimate for the current quarter represents a 12.3% increase from the same period last year. The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 0.3% in price over the past month to close the last trading session at $46.39.
PHM’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has an A grade for Growth and a B grade for Sentiment, and Quality. Among the 24 stocks in the B-rated Homebuilders industry, it is ranked #1. Click here to see the additional POWR ratings of PHM for Value, Momentum, and Stability.
Cavco Industries, Inc. (CVCO)
CVCO in Phoenix, Ariz., designs, produces, and markets manufactured homes in the United States. The company operates in Factory-Built Housing and Financial Services segments. Its manufactured homes are marketed under seven brands: Cavco, Fleetwood, Palm Harbor, Fairmont, Friendship, Chariot Eagle, and Destiny. It also sells its homes through a network of independent and Company-owned retailers, planned community operators, and residential developers.
On February 28, CVCO announced the acquisition of a 184,000 square-foot manufacturing facility in North Carolina to build homes under the U.S. Department of Housing and Urban Development standards. Through this acquisition, CVCO expanded its homebuilding production lines to 27.
In the third quarter, ended Jan. 1, 2022, CVCO’s net revenue increased 49.5% year-over-year to $431.71 million. Its income from operations rose 130.4% from its year-ago value to $54.89 million, while its net income grew 304.1% to $79.62 million. The company’s net income per share increased 304.2% from its year-ago value to $8.57.
The $4.81 consensus EPS estimate for its fiscal fourth quarter (ending March 2022) represents a 77.6% improvement year-over-year. The $435.50 million consensus revenue estimate for the current quarter indicates a 42.1% increase from the same period last year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of CVCO have gained 25.3% in price over the past year.
CVCO’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. It has an A grade for Sentiment and a B grade for Growth and Quality. It is ranked #3 out of 24 stocks within the Home builders industry.
To see the other ratings of CVCO for Value, Momentum, and Stability, click here.
Cyrela Brazil Realty S.A. Empreendimentos e Participações (CYRBY)
CYRBY in Sao Paulo, Brazil, develops, constructs, sells, and services residential and commercial properties in Brazil. It sells its homes under the Cyrela, Living, Vivaz, and Cyrela Urbanismo brand names. The company also engages in the leasing, management, and construction of properties, and providing consultancy services.
During its fiscal year 2021, which ended December 31, CYRBY’s net revenue increased 43.6% year-over-year to R$4.79 billion ($960.10 million). Its gross profit rose 56.4% from the year-ago value to R$1.67 billion ($333.86 million). And its adjusted gross margin rose 200 basis points from the same period last year to 35.7%.
Analysts expect CYRBY’s revenues to increase 23.1% year-over-year to $232.56 million in the fiscal first quarter (ending March 2022). The company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past three months, the stock has gained 22.6% in price to close its last trading day at $3.36.
CYRBY’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. CYRBY also has a B grade for Value and Momentum. The stock is ranked #3 in the Home builders industry.
In addition to the POWR Ratings I have just highlighted, click here to see the CYRBY ratings for Growth, Stability, Sentiment, and Quality.
PHM shares were trading at $44.92 per share on Wednesday afternoon, down $1.47 (-3.17%). Year-to-date, PHM has declined -21.16%, versus a -5.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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