PulteGroup Inc (PHM)

Conclusion

PulteGroup is a United States homebuilder that sells single-family and attached homes under the Centex, Pulte Homes and Del Webb brands, and also runs mortgage banking, title and insurance agency operations. The shares trade at 135.88 USD, giving a market capitalisation of 25.9 billion USD and an enterprise value of 26.7 billion USD.

The verdict is overvalued. The price-to-earnings ratio is 14.4 against a ten-year median of 8.8, and enterprise value to EBITDA is 11.95 against 7.28. The discounted cash flow gives 117.12 USD per share at a discount rate of 10.79%, and the fair value from historical multiples is 91.95 USD. The fair value band runs from 83.63 to 125.44 USD with a midpoint of 104.53 USD, a margin of safety of -23.1% at the current price. The reverse DCF implies growth of 9.8% a year, against revenue growth of 9.4% over five years and growth of 6.5% in free cash flow per share over the same period. The price therefore assumes growth close to the best of the company's recent record.

The balance sheet holds the case up: net debt to EBITDA is 0.37 and the Altman Z-score is 5.72. Return on invested capital of 11.9% is above the 10.2% weighted average cost of capital. The weakest numbers are in earnings quality: the Beneish reading flags likely manipulation, and free cash flow conversion over five years is 55.4%. Estimates for next year have been cut by 16.1% over 90 days, with twelve downward revisions and none upward in the last 30 days.

Financial health

Financial strength is green, supported by low leverage, strong liquidity and a high interest coverage figure. The current ratio is 5.84 and the quick ratio is 0.66. Net debt to EBITDA is 0.37, debt to equity is 0.17, and interest coverage is 4,611 times on a trailing basis. The Altman Z-score of 5.72 sits in the safe zone, but that model was designed for manufacturers, and PulteGroup is a homebuilder, so the reading should be taken with care. Insolvency risk is low, at about 0.02% by the estimate of the Ohlson model over one to two years, based on figures as of 2025-12-31.

Earnings quality

Earnings quality is red, because two of its four signals are assessed as bad. The Beneish M-score of -1.67 is labelled as likely manipulation, and free cash flow conversion is 55.4% over five years, although it reaches 72.3% on a trailing basis. Accruals are 2.0% of the relevant base, and stock-based compensation is only 0.35% of revenue, leaving free cash flow after that cost at 1.24 billion USD. The share count has fallen by 5.8% a year over five years, which reflects buybacks. The Piotroski score is 5 out of 9. Earnings beat expectations in six of the last eight quarters, with an average surprise of 5.9%, but estimates have been falling sharply.

Profitability

Profitability is green. Margins are close to their ten-year medians but slightly below them: gross margin is 24.1% against 25.2%, operating margin 14.1% against 14.7%, and net margin 11.2% against 12.8%. Margin stability is 0.59. Return on invested capital is 11.9% against a weighted average cost of capital of 10.2%, a ROIC minus WACC of 1.7%, which is neutral. Its five-year median ROIC is 20.6%, so returns are well below their history. The DuPont split shows a net margin of 12.8%, an asset turnover of 0.96 and an equity multiplier of 1.39, so leverage adds little to the 13.7% return on equity.

Growth

Growth is green. Revenue compound annual growth is 2.2% over three years, 9.4% over five and 11.2% over ten. Earnings per share grew 0.1% a year over three years, 16.3% over five and 23.3% over ten. Free cash flow per share grew 55.0% a year over three years but only 6.5% over five. Revenue has risen in eight of the last ten years. The estimate for next year's earnings growth is 1.2%, which is neutral and shows how sharply near-term expectations have dropped.

Valuation

Valuation is red. Today's multiples are well above their ten-year medians: price-to-earnings is 14.4 against 8.8, a premium of 63.1%; enterprise value to EBITDA is 11.95 against 7.28, a premium of 64.3%; price to free cash flow is 19.9 against 14.1, a premium of 41.5%. Price to book is 1.98 against 1.89, a premium of 4.3%. The discounted cash flow gives 117.12 USD per share at a discount rate of 10.79% and terminal growth of 2.5%, with the terminal value making up 50.1% of the result. The fair value band is an order-of-magnitude estimate built on fixed assumptions, not a price target. The dividend yield is 0.75% and the payout on free cash flow is 14.9%.

Risks

A weaker free cash flow conversion would reduce the cash that supports the buybacks and dividend, and a Beneish reading in the manipulation zone calls for closer checks on reported earnings. Continued downward estimate revisions would push earnings further below the current premium multiples. Margins below their medians and a ROIC well under its five-year median would leave little room for error if demand softens. Because the DCF relies on the terminal value for about half its result, small changes in the discount rate or long-term growth would move it a lot. No debt maturity schedule and no revenue by segment were available, so refinancing risk and the mix between homebuilding and mortgage operations cannot be assessed here.