PulteGroup, Inc. (PHM), D.R. Horton, Inc. (DHI): Wednesday’s Top Upgrades (and Downgrades)

For all the factors weighing in D.R. Horton, Inc. (NYSE:DHI)’s favor, and against PulteGroup, Inc. (NYSE:PHM), Pulte does have two advantages over its rival, from an investor’s perspective: It’s growing faster, and boasts higher-quality profits.

Analysts predict that Pulte will post annualized profits growth in excess of 42% per year over the next five years. That’s quite an advantage over the sub-8% prediction they have on record for DR. Plus, D.R. Horton, Inc. (NYSE:DHI) is burning cash at the rate of more than $1.1 billion dollars a year, Pulte is piling up cash nearly as fast as DR is burning it. Over the past 12 months, Pulte’s free cash flow has amounted to a whopping $801.5 million, a number more than 250% greater than the $300 million the company reported in GAAP profits.

As a result, Pulte shares currently trade for just 9.2 times free cash flow — and are therefore arguably both cheaper than they appear, and cheaper than shares of D.R. Horton, Inc. (NYSE:DHI) as well.

These numbers are subject to change, of course, and in rather short order. Both companies are expected to report earnings, and update their numbers tomorrow. But as of today, I have to disagree with Compass Point’s analysis. Seems to me, despite all surface-level indications to the contrary, PulteGroup, Inc. (NYSE:PHM) is actually the better bargain here.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of JPMorgan Chase & Co (NYSE:JPM).

The article Wednesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com is written by Rich Smith.

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