Wachovia upgraded Pulte Homes (PHM) to outperform from market perform.
Analyst Carl Reichardt says his discounted cash-flow analysis supports higher valuation ranges for most homebuilders. He thinks Pulte is now the most undervalued stock in his universe. Reichardt says he uses a disounted cash-flow analysis because he thinks earnings streams have become more predictable for the group. He expects housing demand to remain solid as the economy improves.
Reichardt believes large public homebuilders should continue to leverage cost advantages and take market share from smaller, private companies, which will provide an earnings per share growth path alongside the housing cycle. He sees $9.65 earnings per share in 2003 and $11.25 in 2004.