PulteGroup (PHM) Faces Strong Sell as Earnings Forecasts Deteriorate

The housing market's struggles are hitting PulteGroup (PHM) hard. Analysts have slashed earnings forecasts for 2025 and 2026, pushing the stock to a Zacks Rank #5 (Strong Sell). With valuation metrics deteriorating and execution risks rising, investors may want to proceed with caution.

Earnings Revisions Paint a Bleak Picture

The downward revision trend for PulteGroup's 2025 adjusted EPS is stark. Analysts now project a 22% year-over-year decline, driven by a 4% sales drop and weak housing demand. This pessimism has been compounded by a 16% year-over-year drop in backlog units (to 11,335 homes), signaling near-term headwinds.

The data shows the consensus EPS estimate for 2025 has fallen from $12.29 to $11.50 since early 2025—a 6.43% reduction—while 2026 estimates have plummeted 11.5% over the same period. These cuts reflect concerns about rising interest rates, affordability constraints, and a slowing economy.

Q1 Results: A Beat, But Not Enough

Pulte's Q1 2025 results showed resilience: it beat EPS estimates by 4% ($2.57 vs. $2.47) and maintained a strong balance sheet ($1.3B cash). However, the quarter also highlighted vulnerabilities:
- Home sales revenue fell 2% year-over-year, despite a 6% rise in average selling prices.
- Net new orders dropped 7% in units and 4.5% in value, underscoring affordability challenges.

CEO Ryan Marshall acknowledged progress in buyer response to lower interest rates but admitted structural housing shortages and high prices remain obstacles.

Analyst Sentiment: Mixed but Increasingly Bearish

While 10 out of 27 analysts still rate PHM a “Buy” or “Hold,” the Zacks Rank #4 (Sell) reflects systemic concerns. Key issues:
1. Sector-Wide Weakness: The Building Products - Home Builders industry ranks in the bottom 24% of Zacks sectors, with peers like Dream Finders Homes also under pressure.
2. 2026 Outlook: Analysts cut 2026 EPS estimates by 10% post-Q1, citing lingering macro risks.
3. Valuation Overhang: PHM's forward P/E ratio of 9.3x (based on $12.26 2025 EPS) may appear cheap, but this masks risks:
- A -14.76% EPS growth rate in 2025 vs. the S&P 500's +7.53% growth.
- A price-to-book ratio of 1.5x, elevated given weak earnings momentum.

The stock has underperformed the S&P 500 by 2% YTD (down 14.5% vs. the index's -12.3%), reflecting investor skepticism.

Investment Recommendation: Strong Sell

The evidence points to PHM being overvalued relative to its earnings trajectory. Key risks include:
- Interest Rate Risks: Higher mortgage rates continue to suppress demand, despite recent declines.
- Backlog Recovery: The 16% backlog drop suggests weak order momentum, which could pressure future quarters.
- Competitive Pressures: Smaller builders like Dream Finders are gaining share with affordability-focused models.

While Pulte's Q2 2025 results (due July 22) could offer a short-term catalyst, the long-term picture is grim. Until earnings stabilize or valuations drop further, the Strong Sell stance holds.

Conclusion

PulteGroup's stock struggles reflect broader industry challenges: affordability issues, macroeconomic uncertainty, and slowing demand. With analysts continuing to revise estimates downward and valuation metrics stretched, investors should avoid PHM until there's clear evidence of a bottom.

Risk Disclosure: Past performance is not indicative of future results. Consult a financial advisor before making investment decisions.