Goldman is out with a bullish note on homebuilder Pulte this morning.
Analyst Joshua Pollard makes the argument that things are so ugly in this space, nobody can be disappointed anymore.
In early February, we suggested that investors “fade the rally” in homebuilder stocks, as we expected weak housing data after the strong run in shares from August 2010 to January 2011. Following a plethora of weak housing data for February, we believe that it will now be harder for housing data to disappoint investors going forward (existing home sales were down 10%, single family housing starts and permits down 10%, and we expect new home sales to be lackluster on 3/23). Admittedly, though, the underperformance of the group has been muted in the face of this data, as unanticipated global events have increased overall market concerns.
As for Pulte itself:
We add PulteGroup to the Conviction Buy List as we believe it is the sole name across our universe where investors are already being paid to wait for the housing recovery. Shares have significantly underperformed (PHM -38%, XHB +6%, SPX+11%) over 12 months and now trade at a 25-40% discount to peers on key metrics. Separately, consensus estimates for 2012 have been lowered by 25% since Jan (vs the group flat) as the Street has extrapolated last year’s one-off charges to 2011. In contrast, we believe the change in sales approach, targeted cost saves, and decreased writeoffs (to be seen as early as 1Q11) will result in a modestly profitable 2011 vs. consensus of -$0.20/share.
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