2Q26 Preview: Build-to-Order Transition in Focus

Research evidence excerpt

2Q26 Preview: Build-to-Order Transition in Focus

Investment Thesis

PHM has executed its operating and capital strategy well in a challenging market, effectively managing the pace vs. price dynamic to

keep inventory turning without overly diluting margin. The stock now trades at a premium multiple to the group and its larger cap

peers, reflecting strong performance. During 4Q25 earnings, PHM announced it intends to shift its product mix back towards build-HOUSING to-order (BTO) and away from spec. Spec is a highly competitive product, more so now given the overall industry shift, with lower

gross margins than BTO. In PHM’s case, we believe higher spec mix over the past few years has also contributed to improvements

in backlog conversion, asset turnover, and cash flow generation, which have supported ROE. Shifting back to BTO may lessen someAND of these ROE supports, which is evident in the 2026 OCF guide of $1.0B vs. $1.8B in 2025. The shift may also affect earnings during

the transition and persist through 2027. In our view, the bigger question is if, in the current affordability-constrained market, there

is sufficient demand for BTO to support the mix shift while maintaining the current margin spread. Still, PHM’s management teamREAL has executed well to-date and we believe investors are giving PHM credit for a successful mix shift to come or looking through

any potential transitional earnings headwinds. We believe PHM is fairly valued at its current 1.8x 1Q26 TBVPS multiple and we

remain Neutral.ESTATE Upcoming Catalysts Price Performance

■ Quarterly results in line with our below-consensus view $150

■ Our proprietary monthly homebuilder survey can provide insights on demand $145

trends $140 $135