PulteGroup, Inc. (PHM), Toll Brothers Inc (TOL), D.R. Horton, Inc. (DHI): Home Builders Continue To Impress

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It is due to its continued solid financial performance, that its shares have risen by nearly 65% of the last year. At the current price, D.R. Horton, Inc. (NYSE:DHI) appears to be slightly undervalued with a forward P/E of 13.56x along with a PEG ratio of 1x.

Analysts believe that D.R. Horton, Inc. (NYSE:DHI) would most likely retain its growth momentum, and estimate its annual EPS to grow by 40% over the next year. Barclays has an overweight rating for the company, with a price target of $31 per share (around 35% premium).

An Undervalued Growth Play

Amongst the mentioned companies, shares of Toll Brothers Inc (NYSE:TOL) have appreciated the least over the last year. However, its order backlog for Q2FY13 stood at $2.53 billion, which rose by an impressive 68.9% as compared to Q2FY12. Furthermore, its debt/equity ratio of 78% is lower than most of its peers in the industry.

Toll Brothers Inc (NYSE:TOL) recently utilized its clean balance sheet to raise $300 million by issuing 10 year bonds at an interest rate of 4.375%. Thanks to the recovering bond market, its interest rate was lower by 150bps as compared to its last issuance in January 2012.

The company currently enjoys an ROI of 9.84%, and if its fully invests its $300 million, we could be looking at around an additional $29.8 million in annualised returns (theoretically).

As of now, its forward P/E of 11x along with a PEG of 0.26x suggest that its shares are heavily undervalued, and analysts estimate its annual EPS to surge by 86.4% over the next year. Barclays has an overweight rating for the company, with a price target of $44 per share (around 30% premium).

Final words

In my opinion, all the mentioned companies have immense growth potential. However instead of picking out a winner, I believe that creating a portfolio of all three companies would be a great way to play the housing boom.

The article Home Builders Continue To Impress originally appeared on Fool.com and is written by Piyush Arora.

Piyush Arora has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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