PulteGroup, Inc. (PHM - Free Report) is able to cash in as the unemployment rate remains near all-time lows and, thanks to the Fed rate cuts, mortgage rates have also fallen. This Zacks Rank #1 (Strong Buy) is expected to see double digit earnings growth in 2020.

PulteGroup is one of America's largest homebuilders with operations in more than 40 markets around the country. Its brands include Centex, Pulte Homes, Del Webb, DiVosta Homes, American West and John Wieland Homes and Neighborhoods.

Its segments include 30% entry-level and first-time buyers, 30% move-up buyers, 15% luxury and 25% active adult.

The diverse strategy means that when one is lagging, the others are there to pick up the slack.

Another Earnings Beat in the Fourth Quarter

On Jan 28, Pulte reported its fourth quarter 2019 results and beat the Zacks Consensus by $0.06. Earnings were $1.14 versus the Zacks Consensus of $1.08.

The company hasn't a great track record of meeting and/or beating the consensus estimate.

It hasn't missed since 2015.

Revenue rose 1% to $2.9 billion as net new orders rose 33% compared to the fourth quarter of 2018 to 5,691 homes.

Average community count for the fourth quarter of 2019 was 865 communities, up from 825 communities in the year ago period.

Unit backlog rose 20% year-over-year to 10,507 homes which a dollar value of $4.5 billion. The dollar value was up just 18% year-over-year as Pulte has been working on expanding its first-time home buyers business. Those homes typically have a lower sales price.

Gross margin, a key metric for home builders, was 22.8%, up from 21.5% a year ago.

Still Seeing Labor Constraints

With unemployment at 3.6%, it's been hard for the homebuilders to find enough labor to meet demand.

Pulte announced it was acquiring Innovative Construction Group, an off-site solutions provider focused on single family and multifamily wood framed construction.

Basically, the frame can be manufactured elsewhere.

It provides full design services, roof trusses and floor systems as well as manufactured wall panels.

2020 and 2021 Earnings Estimates on the Move Higher

Analysts are bullish on Pulte for 2020 and 2021. The Federal Reserve is expected to keep rates low, and possibly even go lower, which means mortgage rates will should remain low.

Consumer confidence is high and the job market remains tight. Additionally, Millennials are marrying and will be in need of housing.

6 estimates were raised for 2020 in the last month, pushing the Zacks consensus estimate up to $4.09 from $3.88. Given that the company made $3.49 in 2019, that's earnings growth of 17.2%.

2 estimates were also revised higher for 2021, pushing the Zacks Consensus up to $4.46 from $4.12. That's another 9.2% earnings growth.

Is it too Hot to Handle?

Shares took off in 2019 as soon as the Fed started cutting rates. They have gained 76% over the last year and are at 5-year highs.

Yet, Pulte is still trading with a forward P/E of just 11.3.

Additionally, it's shareholder friendly with a share repurchase plan and a dividend.

In 2019, the company purchased $274 million, or 3% of its outstanding shares. The dividend is yielding 1%.

PulteGroup is not the only Zacks Rank #1 (Strong Buy) in the home builder group.

D.R. Horton (DHI - Free Report), KB Home (KBH - Free Report) and M.D.C. Holdings, Inc. (MDC - Free Report) are also strong buys.

For an investor looking for a way to play the hot spring housing market, PulteGroup is one to keep on your short list.