DCF Studio

    PHM · NYQ · Consumer Cyclical

    PulteGroup, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 164.17

    Market price

    USD 117.26

    Implied upside

    +40.0%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages just 0.66% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of 0.5%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 164.17+40.0%
    Exit multiple
    USD 144.26+23.0%
    Market price
    USD 117.26

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn3bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 17.8bnUSD 18.2bnUSD 18.7bnUSD 19.2bnUSD 19.7bn+2.7%
    EBITUSD 3.6bnUSD 3.7bnUSD 3.8bnUSD 3.9bnUSD 4.0bn+2.7%
    NOPATUSD 2.9bnUSD 2.9bnUSD 3.0bnUSD 3.1bnUSD 3.2bn+2.7%
    Add depreciation & amortisationUSD 93.0mUSD 95.5mUSD 98.0mUSD 100.6mUSD 103.3m+2.7%
    Less capital expenditureUSD -177.7mUSD -182.4mUSD -187.3mUSD -192.3mUSD -197.4m+2.7%
    Less increase in working capitalUSD -408.9mUSD -419.7mUSD -430.9mUSD -442.3mUSD -454.1m+2.7%
    Free cashflow to firmUSD 2.4bnUSD 2.4bnUSD 2.5bnUSD 2.6bnUSD 2.6bn+2.7%
    Discount factor0.95100.86020.77810.70380.6365-
    Present valueUSD 2.3bnUSD 2.1bnUSD 1.9bnUSD 1.8bnUSD 1.7bn-7.1%
    Present Value Of The ForecastUSD 9.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.135Reported 1.201, pulled toward 1.0 (Blume)
    Cost of equity11.24%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 22.3bn90.7% of capital
    Total debtUSD 2.3bn9.3% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC10.56%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 164.17

    70% of EV

    Forecast FCFF, final year
    USD 2.6bn
    Capex at depreciation, working capital in reinvestment
    USD 3.2bn
    Less reinvestment at g/ROIC (11.8% of NOPAT)
    USD -374.5m
    Capitalised
    USD 2.8bn
    ROIC (reported)
    21.2%
    Terminal value, undiscounted
    USD 35.7bn
    Terminal value, discounted
    USD 22.7bn
    Enterprise value
    USD 32.5bn
    Less net debt
    USD -297.9m
    Equity value
    USD 32.8bn

    Exit at 7.1x EBITDA

    Value per shareUSD 144.26

    66% of EV

    Terminal value, undiscounted
    USD 29.4bn
    Terminal value, discounted
    USD 18.7bn
    Enterprise value
    USD 28.5bn
    Less net debt
    USD -297.9m
    Equity value
    USD 28.8bn

    Spread between methods: 13%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.56%199.65207.61216.83227.67240.60
    9.56%175.09180.56186.76193.88202.12
    10.56%155.98159.85164.17169.03174.54
    11.56%140.69143.49146.57149.99153.80
    12.56%128.18130.24132.48134.94137.64

    Outlined: this model. Green text: above today's price of 117.26. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year2.7%-14.0%-16.6pp
    EBIT margin20.4%14.9%-5.5pp
    Discount rate10.6%13.9%+3.4pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.